It’s important to have good records when running your business for many reasons. Sometimes you need to run your personal expenses through your business, but this can cause your business records to be messy.
In today’s episode of MissionBusinessPodcast.com, Bernard Roesch explains how to separate personal and Expenses>Business Expenses effectively within QuickBooks.
If you have any questions about this podcast episode, please feel free to contact us.
Why Personal Expenses Get Run Through A Business
There are a number of reasons why you may have personal expenses as part of your business books.
- For example, you may simply keep most of your cash in your business accounts rather than moving money around.
- When you need cash for personal expenses, you might pay for these expenses straight out of your business accounts. That’s not necessarily bad, though it is best to keep business and personal accounts completely separate.
- However, many business owners do not know this when they start their business and learn to operate by combining personal and business accounts.
- Even if you do separate personal and Expenses>Business Expenses, you may accidentally pay for a personal expense with a business card. For example, if you have two separate credit cards, you might be at the grocery store and accidentally use the business card to buy personal supplies.
- There are many reasons why personal expenses may appear in business books. And in this episode, we simply want to help you understand how to effectively separate those for reporting reasons.
How To Separate Personal And Expenses>Business Expenses In QuickBooks
As mentioned above, the best option is to have separate bank and credit card accounts for business versus personal use. This makes it easier to separate records within QuickBooks, simply based on which bank account or credit card was used for the transaction.
- To actually separate records within QuickBooks, during bookkeeping you need to book them in separate expense accounts.
- For example, for personal expenses you may use the other expenses category which moves the expenses to a separate area on the profit and loss.
- Best practice from an accounting perspective, would be to book the expenses into a receivables account that effectively shows the business owner personally owing money to the business.
- One way or another, it’s important that personal expenses are categorized separately within QuickBooks so that you can adjust your QuickBooks reports to not have personal expenses affect the business records, even though they are both in your accounting.
Need Help Configuring QuickBooks
Although these things may seem granular, separating personal and Expenses>Business Expenses does matter. From a best practice perspective, it should be done from day one but it can become a serious problem at key times in your business such as if you were selling the business or trying to receive financing.
If you need help getting a process in place to separate personal and Expenses>Business Expenses, contact Bernard today.
You can also visit MissionBusinessPodcast.com for more insights that Bernard has been sharing with us in the previous episodes.
Looking for the right QuickBooks software for your business’ needs? MISSION Accounting can help.