Running a business not only requires a lot of hard work and dedication, it can also be a big financial commitment that often involves spending money from your own pocket.
As a business owner or freelancer that makes financial contributions to your business, it’s important that you know how to account for owner contributions, as well as how to record them in your invoicing software.
When would I make an owner contribution?
When you’re starting out with a new business venture, there are a number of different costs that need to be covered before you’re making a profit: deposits and down payments, basic equipment and supplies, and even building a website or creating a logo. It’s therefore pretty likely that you’ll use some of your own money to get your business up and running – even if you manage to get financial backing from a bank or investor.
It’s also common to put money into your business at a later date – perhaps to make an expensive purchase that you can’t quite cover with the money in your business bank account, or perhaps as a temporary solution to poor cash flow.
How to record an owner contribution in your invoicing software
Whenever you put money in or take money out of your business, you should make a record of this in your accounting and invoicing software. With Debitoor, you can record an owner contribution with just a few clicks.
From an accounting perspective, whenever an owner puts money into their business, there’s an assumption that this money will be paid back. Even if you’re happy to forget about the amount you put in, simply treating owner contributions as income gives a distorted picture of your finances and can give the impression that your business is more profitable than it actually is.
To record an owner contribution in Debitoor invoicing software, you’ll therefore need to create a new expense rather than simply record the money as income.
Enter the description as something along the lines of ‘Owner contribution’, ‘Owner payment’, or ‘Owner deposit’, and then select the category ‘Owner payment’ (which you can find under ‘Bank & Financing costs’). Once you’ve entered the description, date, and amount click save.