Invoicing regarding owner's part-payment to pay the invoice.

[Ash_Rainer]

Hi, this is a rather convoluted query so I'll lay it out as best I can.

Problem:  The owner bought plant on a single invoice where the company paid 3 separate installments, and the owner paid the 4th installment out of her personal bank.  The invoice wasn't issued until all 4 installments were made.

To deal with the all four installments in the simplest way, I simply entered the invoice 4 times showing each installment value so I could match the payments.  I applied all of them to an Other Asset account with the intention of depreciating the plant purchase, so a Capital account.  Easy, for the company-paid 3 installments. 

However, the 4th installment, being the owner's own payment, is a problem (to me).  I need to:

1.  Close this invoice, and

2.  On closing, somehow show that the company owes the owner this invoice value without losing the Capital account value.

The only (incomplete) solution I've come up with is for the owner to temporarily deposit the money into the Owners Equity account, I pay the invoice by taking the money from Owners Equity, and them set up a purchase invoice where the company owes the owner and paying by the cheque account so the owner receives the money back. But, while this would give the owner back her money (2nd amount) and close the invoice without hurting the capital account, it still won't show that the company owes the owner the 1st amount.  

I might have been thinking about this too long and am missing a very easy solution, but I just can't see it.

Many thanks.

[Tracey_H · Accepted solution]

Hi @Ash_Rainer 

Thanks for your post. Generally speaking you could create an Owner Loan account. As the company owes the Owner it would generally be a liability account and you would need to set the Account Type as Credit Card so that you can select it as the Pay From Account.

You could then record the payment of the 4th instalment in Pay Bills and select that owner loan account as the Pay From Account. 

When the company reimburses the owner you would record a Transfer Money transaction. The Transfer Money From account would be the bank account you withdraw the money from and the Transfer Money To account would be the owner loan account. This will leave the owner loan account with a zero balance.

If you are unsure about creating the loan account or recording these transactions I do recommend speaking to your accountant.

Please let me know if you need further help.

If my response has answered your enquiry please click "Accept as Solution" to assist other users find this information.

[Ash_Rainer]

Thanks Tracey, that worked a treat.