Last month I talked about Mixing Business and Personal Funds in a previous blog, so today I’ll go over in more detail how I account for this in QuickBooks. It’s totally doable when there’s some intermingling, you just want to be sure you’re keeping receipts and identifying business versus personal items.
These examples will be done under the assumption that you have separate business accounts, but use the wrong account for purchases. If you are like me, and have a shared account for business and personal, the easiest method for segregation is to set up classes in QuickBooks for each.
Example: Business purchase made on personal account
Let’s say you inadvertently use your personal credit card to pay a vendor. In the expense module, choose your vendor as normal. I’ve set up a bank account called “Personal Funds,” which should always have a zero balance, and I’m going to proceed as I normally would with recording an expense.
Since this is not actually coming out of our business account, we’re going to have an account called “Owner Contribution.” This account is saying that you as an owner are contributing your personal money into the business. If you haven’t already set this account up, add it, with category type as Equity, and the detail type as Partner Contribution.
Notate in the description “paid with personal card.” Then we’re going to record a negative for the dollar amount. Notice how our total for the expense is zero. In one line we recognize the expense for the company, and the next line we recognize that the money came out of a personal account, which is why there will be a net zero affect to any of the banking accounts for your business.
Example: Personal purchase made on business account
Let’s say you inadvertently use your business card to pay a personal bill. Choose the vendor, and this time since it’s coming out of our business bank account, choose that account. Our account coding is simply going to be an “Owner Distribution”.
You’ll want to set that account up if you haven’t already. An owner distribution means the same as if you had paid yourself a salary and then took those funds and paid your own bills. It’s the opposite of a contribution. Category type again is going to be Equity, detail type is Partner Distribution.
You don’t necessarily need to have a description in the expense, just add the amount. This will show as coming out of the business account but will NOT hit the business profit and loss since this is a balance sheet equity account.
Example: Mix of business and personal purchase made on business account
Sometimes you may make a purchase that includes both business and personal items. Essentially, your expense entry will have both and expense line and equity line. Choose the business account, enter the expense amount for the portion that is business related. Then do Owner Distribution for the portion that is attributed to personal items.
If you’d like extra help on this topic please feel free to CONTACT ME and I can go over it in more detail with you.