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How to record in Xero business expenses paid with personal funds

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Xero Central outlines how to process business expenses that were paid for personally by using the Xero Expenses App. Basically, the recommendation is that whether it’s an employee or a director who has spent the money, they use the Expenses app to process it into Xero. Here’s the link to those directions: https://central.xero.com/s/article/Manage-funds-in-and-out-of-your-business#Introducecashorrecorddrawings

In my view, use of the Expenses App should be limited to Employees who are incurring expenses that need to be reimbursed. If it’s only the director spending money personally, it doesn’t make sense for them to have to download the Expenses App and then submit, approve and repay their own expenses. There is an easier way which I believe makes more sense. Here’s the way I do it:

  1. Add the paid Expense into Xero as a Bill. It doesn’t matter if it’s already been paid (which it will have been), and doesn’t matter if the documentation is just a receipt and no invoice. You might do this by emailing the invoice into Xero directly, sending it through Hubdoc or manually creating a bill and then attaching the PDF copy of the document.
  2. Complete any missing details and approve the Bill.
  3. Find the Bill again, open it, and scroll down to the bottom where you can “Add Payment” (as shown below)
  4. Fill out the payment details, using the date you want for the transaction and using “Funds Introduced” in the Paid From box. Doing this will reconcile the transaction to the correct account without having to transfer funds to reimburse personal expenditure.

If you don’t see “Funds Introduced” as a Paid From option

The Paid From Box will show your bank accounts, and possibly other accounts as well. The options will only include accounts that have been marked in Xero as able to accept payments. So if “Funds Introduced” is not showing, you will need to edit the GL account to enable it to accept payments. Go to Accounting / Chart of Accounts (it’s in the advanced area), and search for Funds Introduced. In the Default Chart of Accounts in Xero it’s 970 – Owner A Funds Introduced.

Edit the code and you will see a tick box at the bottom “Enable Payments to this account”. This box needs to be ticked (as shown here). Once the box is ticked, you will find the Funds Introduced account will appear as an option when you mark a Bill as paid.

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