Company Expenses Paid by Directors: Evidence and Entries

When reviewing company expenses paid by directors using personal funds, the company needs to confirm that it is responsible for the expenditure before recording a cost or reimbursing the payment. Payment by a director does not automatically make the expenditure a company expense, a capital contribution or a loan.

For example, a director of a villa management company in Bali pays an invoice for repairs to operating equipment because the company bank account cannot yet be used. If the invoice is the company’s obligation and meets the recognition criteria, the accounting entry may recognise an expense or asset together with a reimbursement payable to the director.

However, a payment for the director’s personal needs requires different treatment. The review should therefore begin with the purpose of the expenditure, the party receiving the benefit and the transaction evidence.

Can a Director Pay Company Expenses?

A director may advance personal funds for business expenditure during operations. However, whether that payment arrangement is appropriate needs to be checked against company policy, the director’s authority, payment terms and the requirements of the particular transaction.

For bookkeeping purposes, the main concern is to record the transaction according to its actual substance. The company needs to distinguish who purchases the goods or services, who has the payment obligation and whether the director will be reimbursed.

Under the amendments to Article 6 of the Income Tax Law made by Law No. 7 of 2021 on Harmonisation of Tax Regulations, expenditure connected directly or indirectly with business activities falls within the deductions considered in calculating taxable income, subject to the applicable requirements.

This does not mean every payment made through a director’s personal account can automatically be deducted from the company’s gross income. The business connection, expenditure category, documents and other tax requirements still need to be examined.

Determine Who Actually Bears the Cost

The first check is to understand the nature of the expenditure, rather than simply identifying the account used to pay it.

Company Operating Expenditure

Examples include villa cleaning supplies, office supplies or business travel costs that are genuinely the company’s responsibility.

If the company receives the benefit and is responsible for the expenditure, it may be recorded as an expense, inventory, an asset or another account according to the substance of the transaction.

The Director’s Personal Expenditure

Purchases for family needs, personal travel or goods that are not used in company activities should not be classified directly as operating expenses simply because the director holds a position in the company.

If the company subsequently bears the director’s personal expenditure, determine whether this creates a receivable from the director, remuneration, an employee benefit, a shareholder distribution or another transaction.

Purchases of Company Assets

Not all expenditure incurred for operations is an immediate expense in the payment period.

For example, a director purchases machinery or equipment that meets the criteria for recognition as a company asset. The company needs to apply its accounting framework to determine the asset treatment, rather than charging the entire amount directly to maintenance expense.

Documents for Company Expenses Paid by Directors

Supporting documents are needed to trace the transaction from the original payment through to reimbursement.

Prepare the following documents as relevant to the transaction:

The supplier’s bill or invoice.
Transfer or payment evidence from the director’s personal account.
The identity of the party receiving the goods or services.
An explanation of the expenditure’s purpose and benefit to the company.
Approval of the expenditure or reimbursement.
Evidence of goods received or services completed.
The company’s journal entries.
Evidence of reimbursement to the director, if already paid.

Article 11 of Government Regulation No. 50 of 2022 requires documents underlying bookkeeping or record keeping to be retained in Indonesia for ten years in accordance with its provisions.

Link the director’s personal payment evidence to the company documents using a single internal reference number. This helps the accounting team find the original invoice, payment evidence, journal and reimbursement documents without having to retrace every bank account from the beginning.

How to Record Expenses Paid by a Director

The entry depends on whether the transaction has already been recognised, who has the obligation and whether the company must reimburse the director.

Example of Recognising an Expense and Reimbursement Payable

Suppose a director pays IDR 6,000,000 for maintenance relating to company operations through a personal bank account.

For this illustration, assume the company has received the service, the full amount qualifies as an accounting expense in the current period, no earlier entry has been made and the company is obliged to reimburse the director.

Account	Debit	Credit
Maintenance expense	IDR 6,000,000	—
Payable to director	—	IDR 6,000,000

This journal recognises the company’s expense and reimbursement obligation. There is no reduction in the company’s bank balance at this stage because the initial payment came from the director’s personal account.

The payable account name may follow the company’s chart of accounts. What matters is that the balance can be traced to the correct party.

If the Invoice Has Already Been Recorded

The situation differs when the company has already recorded the supplier’s invoice as a trade payable.

For example, the company previously recognised an expense and supplier payable of IDR 6,000,000. The director then settles that invoice using a personal account.

In those circumstances, consider an entry transferring the obligation from the supplier to the director:

Account	Debit	Credit
Trade payable to supplier	IDR 6,000,000	—
Payable to director	—	IDR 6,000,000

The expense is not recognised again because it was recorded at the earlier stage. Recognising it twice can overstate costs.

Journal Entry for Reimbursing the Director

Once the documents have been checked and reimbursement approved, the company can settle the payable by transferring funds to the director’s account.

Assuming the IDR 6,000,000 payable is correct and paid in full, the illustrative journal is:

Account	Debit	Credit
Payable to director	IDR 6,000,000	—
Company bank account	—	IDR 6,000,000

At reimbursement, the company does not need to recognise the same expense again. This entry only settles the obligation recorded previously.

Keep the reimbursement transfer evidence with the original transaction documents. After payment, confirm that the payable to the director has decreased by the amount actually paid.

Recording Errors and How to Correct Them

Problems often arise when payment documents do not reach the accounting team promptly or when several employees record the same transaction.

Problem	Check	Action to consider
An expense is recorded twice	Compare the invoice and journals	Reverse or correct the duplicate entry
An invoice is not recorded	Check receipt of goods or services	Determine the appropriate period and account
Personal expenditure is included in business expenses	Check the beneficiary	Reclassify according to substance
Reimbursement remains unpaid	Match the director payable balance	Retain the correct obligation and monitor settlement
Payment exceeds the invoice	Check bank movements and approvals	Investigate the overpayment
Evidence is incomplete	Contact the supplier and director	Complete the documents before final approval

Do not make corrections solely to bring a balance to zero. A journal adjustment needs a reason, supporting documents, the correct period and review by an authorised person.

For foreign currency payments, exchange rates can also affect the accounting value. Assess the transaction and any exchange difference using the relevant accounting policy and applicable requirements.

Tax Review of Expenditure Paid by a Director

Separate accounting recognition from tax recognition. A transaction may be recorded in the books but require an adjustment when the company determines taxable income.

In its guidance on deductions from gross income, the Directorate General of Taxes lists categories connected with business activities, including materials, services, travel and administration.

The company needs to assess whether the claimed expenditure is connected with its business, supported by documents and eligible for deduction under the rules for that transaction category.

Reimbursement Alone Does Not Determine Tax Treatment

A company transfer reimbursing the director should not immediately be treated as salary, a dividend or other income without examining the underlying transaction.

Likewise, calling a payment a reimbursement does not automatically remove tax obligations arising from the original transaction. If an invoice concerns services, rent or another payment subject to particular tax rules, assess withholding, collection and documentation obligations separately.

Review Related Party Relationships

If the director is also a shareholder or another related party, the relationship, transactions and balances need additional attention.

Article 11 of Government Regulation No. 50 of 2022 also addresses retaining certain additional documents or information to support the arm’s length nature of related party transactions.

The Indonesian Institute of Accountants explains in its overview of PSAK 224 on Related Party Disclosures that related party relationships, transactions and balances can be relevant to financial statement disclosures.

Application depends on the company’s reporting framework and circumstances. Not every small transaction requires the same disclosure treatment.

Example for Hotels and Villa Management in Bali

Imagine a villa management company director pays the following operating expenditure from a personal account:

Expenditure	Illustrative amount	Check
Cleaning supplies	IDR 1,500,000	Evidence of purchase and use
Equipment repairs	IDR 3,000,000	Invoice and nature of the work
Administrative supplies	IDR 750,000	Evidence of receipt and use
The director’s family meal	IDR 1,250,000	Identify it as personal expenditure

The total payment of IDR 6,500,000 does not mean the entire amount is a company expense.

Assuming the first three items are genuinely the company’s responsibility and meet the relevant accounting recognition criteria, IDR 5,250,000 may be submitted for reimbursement. The family meal needs to be separated and cannot automatically be claimed as a company operating expense.

This example illustrates an internal control. The tax treatment of each item still needs to be assessed against the facts and relevant requirements.

Checklist Before Reimbursement

Before transferring money to the director, the accounting team should complete these checks:

Confirm that the goods or services are actually used for company purposes.
Check the invoice and the identity of the beneficiary.
Match the invoice amount with the director’s payment evidence.
Confirm that the transaction has not already been recorded or paid.
Determine whether the expenditure is an expense, an asset or another transaction.
Review the payable to the director and the amount to be reimbursed.
Separate the accounting assessment from the review of tax obligations.
Obtain approval from an authorised person.
Keep reimbursement payment evidence with the original transaction.
Reconcile the payable balance after payment.

The company can also introduce a reimbursement claim form and separate responsibility for submitting, checking and approving payments. These are internal control recommendations to reduce unsupported transactions and duplicate payments.

Conclusion

Company expenses paid by directors cannot be assessed solely by the account used for payment. Before recognising an expense or asset, the company needs to determine the expenditure’s benefit, the party with the obligation, the transaction’s nature and whether the evidence is complete.

If the expenditure is genuinely the company’s responsibility and creates a reimbursement obligation, a payable to the director may be recorded according to the circumstances. Repayment then settles that payable rather than recognising the cost a second time.

Checking documents and separating accounting from tax treatment helps produce records that can be traced and prevents unsupported corrections.

Need to Review Company Expenses Paid by Directors?

If your hotel, villa management company or other Bali business has operating transactions advanced from a director’s personal funds, Usman Tax can be a starting point for discussing accounting services and a review of the transaction records.

Prepare invoices, payment evidence, journals and a list of unsettled reimbursements so that the review and any bookkeeping corrections can be discussed with a clear focus.

Continue with the guide to personal and company bank reconciliation to align the documents and next steps with the issue under review.

Read Also: Hotel and Villa Accounting: A Guide to Hospitality Financial Systems

Where another party handles the books, define outsourced accounting responsibilities and data handover so that the director’s payment evidence is included in the records.

Prepare the relevant documents before discussing your needs through accounting services at Usman Tax.

FAQ Company Expenses Paid by Directors

Do Company Expenses Paid by a Director Automatically Qualify for a Tax Deduction?

No. Assess the business connection, nature of the transaction, supporting evidence and tax requirements. The use of the director’s personal funds is not the sole basis for determining tax deductibility.

Which Accounts Are Used When a Director Pays Company Expenses?

If the transaction qualifies for recognition as a company expense or asset and the company must reimburse the director, the entry may involve an expense or asset account and a payable to the director. The accounts depend on the transaction’s substance and the bookkeeping structure.

Should Reimbursement to a Director Be Recorded as an Expense Again?

No, if the expense was recognised in the initial entry. The reimbursement reduces the payable to the director. Recognising the same cost twice can make the books inaccurate.

What If the Invoice Has Already Been Recorded as a Supplier Payable?

The company needs to check whether the director’s payment settled that supplier payable. If so, the appropriate entry may transfer the obligation from the supplier to the director rather than recognise a new expense.

Does a Foreign Director Require Different Treatment?

A director’s nationality does not itself determine how company expenditure is classified. However, tax status, the nature of the payment, cross border transactions and related party relationships may require further review.

Sources and References

Law on Harmonisation of Tax Regulations — pajak.go.id
Deductions from Gross Income — pajak.go.id
Government Regulation No. 50 of 2022 on Procedures for Exercising Tax Rights and Fulfilling Tax Obligations — jdih.kemenkeu.go.id
Accounting Standard on Related Party Disclosures — web.iaiglobal.or.id