How to Record a Loan to Your Business From Your Personal Savings
Below is the clear and accurate way to record an owner loan when you transfer money from your personal savings into your business. This includes treatment for sole proprietors, LLCs, partnerships, and corporations, plus instructions for recording it in QuickBooks and Xero.
| Section | Instructions | Example / Notes |
|---|---|---|
| 1. What an Owner Loan Is | It is a liability owed to the owner, not income or equity unless intentionally treated as such. | Business receives cash; loan payable increases. |
| 2. Create the Correct Account | Chart of Accounts → Liability → Owner Loan Payable. Type: Current (≤12mo) / Long-Term (>12mo) | Names: Loan from Owner, Due to Owner, Shareholder Loan, Director’s Loan |
| 3. Journal Entry | Debit Business Bank Account, Credit Owner Loan Payable | Example: $5,000 debit Bank, credit Owner Loan Payable |
| 4. QuickBooks Online | Option A: Bank Deposit → Received From: Owner, Account: Owner Loan Payable; Option B: Journal Entry (debit bank, credit loan) | Both methods valid |
| 5. Xero | Option A: Receive Money → Who: Owner, Account: Loan Payable; Option B: During Reconciliation → Add Details, select Owner Loan Payable | Amount example: $5,000 |
| 6. Interest | Owner loans usually interest-free. If charging interest, record as Interest Expense; owner reports interest received as personal income. | Normal practice: 0% interest |
| 7. Repayment | Debit Owner Loan Payable, Credit Business Bank Account. Not an expense, reduces liability only. | No effect on Profit & Loss |
| 8. Verify Entry | Check Balance Sheet: Bank increased, Owner Loan Payable increased, P&L unchanged | Simplest way to confirm correct bookkeeping |