Keeping Business and Personal Money Separate in QuickBooks

A very common question new users of QuickBooks have is "How do I record personal money used in my business?" One way is to use and equity type account called Owner's Investment. Another method is to use a credit card type account. I prefer the latter.

Using a credit card type account allows you to keep business records completely separate from personal. It is good business practice to do this. You can better determine what transactions you need to report for tax purposes and you can keep the IRS out of your personal bank account if you are ever audited.

The method using an Owner's Investment equity account properly records the expense, but the financial transaction (money withdrawn from bank to pay vendor) resides in your personal bank account. To remedy this, we will use the "Credit Card" type account in QuickBooks to record the expense and then pay the owner back from the business checking. Don't worry, this is just a plain old current liability account that Intuit has decided to call "credit card". No harm will come from using it for this purpose, I promise!

First, set up the new account:

• Go to the menu bar then Lists>Chart of Accounts.
• Click on the Account button in lower left and then choose New
• Or Press Ctrl A, to open chart of accounts, then Press Ctrl N to add a new account
• Name the account "Owner Paid Expenses" or "Due to Owner"
• Tax Line is

Next, when you incur an expense that you paid for from personal funds, use the Enter Credit Card Charges function from the Home page and use the "Owner Paid Expenses" account you just set up. Input expense account, amount, date, etc. Save the receipt or back up documentation.

Lastly, you pay yourself back for these expenses from the company checking account in the year in which you incurred the expense. To do this, write or record a check to yourself from the business checking and use the credit card account in the "Account" field. This will reduce the account that we have been adding charges to through Enter Credit Card Charges.

Using this method lets you keep the financial transaction all in the business checking account.

Reesa M. McKenzie is a small business accountant and Owner of AccountAbility Bookkeeping and Tax. She has a bachelor's in accounting and is also a Certified QuickBooks ProAdvisor. Need affordable assistance with your bookkeeping? Visit now at http://abilitybooks.com.