This post was originally published on September 21, 2020, and has been updated to make the advice clearer, more practical, and more useful for today’s handmade business owners.
You bought supplies with your personal debit card. You transferred money from the family checking account to cover your website renewal. Or you put some of your savings into the business checking account so you could prepare for an upcoming craft fair.
That money helped fund the business, but it wasn’t money the business earned. It needs to be recorded as an owner contribution, not as sales or other business income.
Let’s look at what an owner contribution is, how to record it, and what to do when you pay a business expense directly from your personal account.
What Is an Owner Contribution?
An owner contribution is money you personally put into your business.
You might contribute money when you first start the business, when you open a business checking account, or when the business does not have enough cash to cover an upcoming expense.
For example, you might use personal money to pay for:
- Inventory or materials
- Website hosting or domain fees
- An educational course
- Etsy or other selling-platform fees
- Craft fair booth fees
- Equipment or tools
- The opening balance in a business checking account
You may see this type of transaction called an Owner Contribution, Owner Investment, or something similar. The exact account name will depend on your bookkeeping system and business structure.
👉These accounts are part of your business’s Chart of Accounts, which is simply the organized list of categories used to record your transactions.
The important part is that the money came from you—not from a customer.
👉 An owner contribution is money you put into the business. An owner’s draw is the opposite: money you take out of the business for personal use.
An Owner Contribution Is Not Business Income
Money you put into your own business is not sales income.
Your business did not earn that money by selling a product, completing a custom order, teaching a class, or providing a service. You supplied the money from your personal funds.
Recording an owner contribution as business income can make your revenue and profit look higher than they really are.
For example, suppose your business earned $1,000 from customers during the month, and you also transferred $500 of your own money into the business checking account.
If you record the entire $1,500 as income, your reports will make it look as though the business earned $1,500. It didn’t. The business earned $1,000 and received another $500 from you.
That difference matters when you are trying to answer questions such as:
- Is the business earning enough to cover its expenses?
- Is the business supporting itself?
- How much money have I personally put into it?
- Is my reported profit accurate?
Your bookkeeping should separate money the business earned from money you contributed.
Who These Instructions Apply To
The examples in this post are primarily intended for sole proprietors and single-member LLCs that are taxed as sole proprietorships.
Partnerships, S corporations, and C corporations may use different account names and may have additional rules for money contributed by an owner, partner, member, or shareholder.
The basic idea is still the same: money contributed by an owner is not customer income. However, the exact bookkeeping and tax treatment may be different.
When your business has more than one owner or is taxed as a corporation, check with your tax professional before deciding which account to use.
How to Record Money Deposited Into the Business
Let’s say you transfer $500 from your personal checking account into your business checking account.
The business checking account increased by $500, but that money was not earned from sales. It came from you.
Your bookkeeping entry would show:
- Business Checking: Increase by $500
- Owner Contribution: Increase by $500
In bookkeeping software, you would normally enter the $500 deposit into the business checking account and categorize it as Owner Contribution or Owner Investment.
If you use a spreadsheet, record the date, the amount deposited, and the fact that the money came from you.
For example:
| Date | Description | Money In | Category |
|---|---|---|---|
| August 3 | Personal money transferred to business checking | $500 | Owner Contribution |
Do not categorize the deposit as sales, product income, service income, or other business income.
How to Record a Business Expense You Paid Personally
Sometimes you do not transfer money into the business checking account first.
Instead, you use a personal debit card, personal credit card, or personal bank account to pay a business expense directly.
Suppose you use your personal credit card to pay $75 for your business website hosting.
The business still had a $75 website expense, even though the payment did not come from the business checking account.
Your bookkeeping entry would show:
- Website Hosting Expense: Increase by $75
- Owner Contribution: Increase by $75
The expense belongs to the business, and you personally supplied the money used to pay it.
Do not record a deposit into the business checking account because no money actually entered that account. Recording a fake deposit would increase the checking balance in your bookkeeping without increasing the real bank balance.
In a spreadsheet, the transaction might look like this:
| Date | Description | Expense | Category | Paid From |
|---|---|---|---|---|
| August 3 | Website hosting | $75 | Website Expense | Owner Contribution |
This lets you record the business expense without pretending it was paid from the business bank account.
Where Owner Contributions Appear on Your Reports
Owner contributions affect your bookkeeping reports differently from sales and expenses.
Profit and Loss Report
An owner contribution should not appear as income on your Profit and Loss report.
Your Profit and Loss report is meant to show the income the business earned and the expenses it incurred during a period of time.
Because an owner contribution is not earned income, it should not increase the profit shown on that report.
If you paid a business expense personally, the expense itself should still appear on the Profit and Loss report. The Owner Contribution portion of the transaction should not.
Balance Sheet
Owner contributions normally appear in the equity section of the Balance Sheet.
👉 Equity in a handmade business represents the owner’s financial interest in the business after its liabilities are subtracted from its assets.
A Balance Sheet shows what the business owns, what it owes, and the owner’s equity as of a particular date.
When you deposit personal money into the business checking account:
- The business checking balance increases.
- Owner equity increases.
When you pay a business expense personally:
- The business records the expense.
- Owner equity increases.
- The business checking account does not change.
Tracking owner contributions helps you see how much personal money has gone into the business without confusing that money with sales.
Owner Contribution vs. Owner Loan
Money you put into the business is not always an owner contribution.
Sometimes an owner lends money to the business and expects the business to repay it. In that case, the transaction may need to be recorded as an owner loan rather than an owner contribution.
An owner contribution is generally recorded in equity. An owner loan is generally recorded as money the business owes, which means it belongs in a liability account.
Calling something a loan is not simply a matter of deciding that you would like the money back someday. A legitimate business loan may need proper documentation, repayment terms, and interest.
Before treating money you put into the business as a loan, talk with your tax professional about how it should be documented and recorded.
What If You Contribute Equipment or Supplies?
You can contribute more than cash to your business.
You might bring in a computer, sewing machine, camera, shelving unit, tools, supplies, or other property that you previously purchased personally.
These contributions can be more complicated because the amount recorded may depend on:
- What you originally paid
- Whether the item was previously used for personal purposes
- The item’s tax basis
- Whether depreciation is involved
- Your business structure
Do not automatically record the item at its current selling price or replacement cost.
Ask your tax professional how the property should be valued and recorded before adding it to your bookkeeping.
How to Track Owner Contributions in a Spreadsheet
Not every bookkeeping spreadsheet includes a full Balance Sheet or separate equity accounts.
Even so, your spreadsheet needs a way to separate owner contributions from business income.
At a minimum, track:
- The date of the contribution
- The amount
- A short description
- Whether money entered the business bank account
- Whether you paid a business expense personally
- The expense category, when applicable
👉 Owner contributions are easier to record correctly when you enter them while the details are still fresh. A simple weekly or monthly bookkeeping routine can help keep personal purchases and business transactions from becoming one large, mysterious pile.
You may want to create an Owner Contribution category or a separate section where you can total the money you have personally put into the business.
For cash deposited into the business bank account, record the amount as money in and categorize it as Owner Contribution.
For an expense paid personally, record the expense in the appropriate business expense category and show Owner Contribution as the source of the money.
👉 If your current spreadsheet doesn’t give you a clear way to separate owner contributions from business income, The 10-Minute Bookkeeper includes categories for recording money you put into the business without mixing it into your sales. It helps keep your income, expenses, and owner-funded transactions separate without turning your bookkeeping into an accounting scavenger hunt.
The Bottom Line
Putting your own money into the business is common, especially when you are getting started, preparing for a large expense, or dealing with a slow sales period.
The important part is keeping that money separate from actual business income.
When personal money enters the business bank account, record the deposit against Owner Contribution. When you pay a business expense personally, record the expense and use Owner Contribution as the source of the money.
That gives you a more accurate picture of what the business earned, what it spent, and how much of your personal money was needed to keep it going.
If you'd rather be working with yarn, fabric, paint or clay than deal with a pile of receipts or bookkeeping spreadsheets, you're in the right place.
I help you get a handle on your numbers, make sense of what's coming in and going out, and actually feel confident running your business -- without accountant-speak or guilt.
👉 Want help figuring out your bookkeeping (without overcomplicating it)? Join the Free Handmade Business Bookkeeping community.
I am a coach/educator, not your bookkeeper or CPA. This information is for educational purposes, NOT financial or tax advice.
Full Disclosure - How I use AI
I use AI to create blog post images, because it produces better maker specific images than I can find after spending hours searching through Canva and other places.
I write ALL of my own blog posts (sales pages, etc.), but I do run the draft through AI to make sure it's clear (and so I don't get too wordy or go off on a tangent!).
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[…] In bookkeeping terms, that’s usually called an Owner Investment or Owner Contribution. […]