Mixed Personal and Business accounts

[Beth Leonard]

I'll take a stab at this, because we also have two small
businesses, and I actually did ask our accountant how to
set things up.  Again, I am not an accountant, so you
may wish to ask yours what applies to your specific situation.

On Wed, Nov 07, 2007 at 10:28:53PM +0000, Karl Grant wrote:
> Credit Business Assets:Current Assets:Current AC;
> Debit Personal Expenses:Gifts
> 
> Thought that was a good idea until I sat down to work out my taxes and found
> that there was no way to track the money in and out of my business!

Depending on exactly what you did, the cash flow report might
help you, but you are best off to keep a separate set of books.
Cash flow works by drawing a circle around a set of accounts and
tracking all money that flows in or out of the circle.

> I would like your learned opinions on the following before I implement it,
> advice, criticism or general mockery accepted :-)
> 
> 1) Separate the business and personal accounts into two separate files

Good idea.  Recommended by my accountant.

> 2) Any money spent on personal use, by cheque or credit card, is entered
> into a Equity:Drawing account

On the business books she said to create an "Equity:Draw" account, but
yes, this is a good idea.  On the business books if I use money from
my personal account (we didn't have a business credit card for a while)
to pay for anything, the expense balanced with Equity:Draw.  Likewise
if I pulled money out of the business petty cash account (some customers
pay cash and taking it is easier than going to an ATM) the transfer
account is Equity:Draw.  Also note that the cash originally came in
as Income:Business Income -> Assets:Petty Cash.  When I take it out
for personal use I transfer Assets:Petty Cash ->Equity:Draw.

> 3) this amount is entered into the personal set of accounts under
> Income:FromDrawings and as an Expense in the relevant account

Maybe.  On the personal side of the books I don't account for the
petty cash.  

Laws may vary from country to country, and it depends a little on
your corporate structure, but if you are a sole proprietorship
in the US, you don't need to record this on the personal side as long
as the business income was properly accounted for as going out to
Equity:Draw on the business books.  On the personal side, you don't
want to list it as an income, because you are not paying income
taxes on this money.  It was already listed as an income to the
business on the business books.  If you want to record what you
did with the money, I'm guessing it would be a transfer from
Equity:Business Equity -> Expenses:Lunch (or whatever you paid
for with the business money)
Note: If you have a bigger business or an LLC you do get taxed
twice and need to record it twice, once as business Income, and
once as personal salary income (or benefits if you bought yourself
lunch on the business dime).  Ask your accountant.  (The flip side
of LLC is that the personal salary is also a business expense,
so it's not quite as bad as it seems.)

> 4) Money going the other direction (probably cash) Personal to Business is
> entered into a Expense:ForBusiness account (is this right?)

If you can manage it, it's best to keep all of the business expenses
on one set of books, so in your business books if you paid for
a business expense (i.e. company letterhead) with personal money out
of your personal bank account then you should record it as an
Equity:Draw -> Expenses:Supplies transaction.

On the personal side of the books, yes, you can record it as
Assets:Bank Account -> Expenses:Business Expenses
In our case there were a few from
Liabilities:Credit Card -> Expenses:Business Expenses.  At tax
time I made sure that all of those (downloaded from the CC company)
got recorded into the business set of books.  I also kept all
the receipts in a separate folder and checked all of them.  I used
the little y/n/c button in the reconcile column to check them off
and make sure I had everything properly recorded.

> 5) the same amount is entered into a Equity:Personally Added Capital (any
> better names?) and the relevant business expense

I'm not entirely sure what amount you're talking about, but our
accountant recommended closing the business books every year by
transferring totals from each expense and income account to an account
called Equity:Owner's Equity that has a description called "Retained
Earnings"

--Beth 
Beth Leonard
http://www.LeonardFamilyVideos.com