Green Eyeshades Needed

March 22, 2009 6:01 PM

I'm trying to set up Quickbooks and accounting was never my game... here's a type of transaction I find that I do alot and need to find out the right way to book it: If you pay a business expense with your personal credit card (say $100) Then you pay your personal credit card from your business account ($1000) would you

• credit expense 100
• debit cash 100
• credit credit card 900
• debit owner's draw 900

Basically the business pays out 1000 to the credit card bill but 100 of that credit card bill was a business expense and the rest was "draw" (income) for the business owner. Thanks and YARMA but ILY

posted by Barrows to work & money (5 comments total)

One transaction: a $1,000 payment to the credit card company, $100 is recorded to whatever expense account, $900 is recorded as a payment to owner (you realize that you can split a transaction in Quickbooks, right?).

It's not great to be paying your personal card out of your business account, or to be putting business expenses on your personal card. Things will be much easier for you if you establish a clear separation between you and the business right off the bat, so get a business credit card for business expenses, and pay your own card yourself after the business has paid you.
posted by robinpME at 6:20 PM on March 22

Yes, split the transaction, but DO get a business charge. When you open it, specify it's for a business and you will get statements that breakdown the expenses as you will need to do for tax purposes, i.e. meals and entertainment, gas, supplies, etc.

It will simplify things and leave you less open to liabilty in the future. When business and personal assets are comingled in a divorce, say, the business then can be looked on as a marital asset. If the business is sued then personal assets can be asessed.
posted by readery at 7:12 PM on March 22

Definitely keep every transaction separate. That's why you keep books- so that if you or an accountant or the IRS sees exactly what happened. I would expect that Quickbooks would have a way to automate this, but my experience with it is not good.

In essence, you are doing two things at once. You are first reconciling the accounts, entering in the transactions that happened so that your balance matches your banks.

Personal account: - $100
Business account: -$1000

Then you need to transfer money between accounts

Personal account: +$1000
Business account -$100

But if it was me, I'd separate it one step further. I wouldn't directly pay my personal bills with my business account. I'd pay myself the $100 as an expense reimbursement, and then pay myself the $900 as pay/salary/earnings. Or of that $1000 is ALL expense reimbursement, note it as such. 10 transactions of $100 a piece (or whatever) debited from the business assets to an expense account. Then at the end of the month, cut a check for the balance of the expenses to myself. I *believe* that's the tax-approved way of doing it anyway. You loaned the business $100, the business is paying you back. And keep your reciepts...
posted by gjc at 7:47 PM on March 22

Stop paying your business expenses with your personal credit card. Get a business card; nearly every bank offers them. You can often get free/cheaper business checking if you have one too.

If, for some reason, you absolutely cannot get a business card and can't use the debit card associated with your business checking account, then consider using a separate personal card that you use only for business. The important part here is that your business and personal funds and expenses are entirely separate at all times.
posted by zachlipton at 9:54 PM on March 22

The transaction on the personal credit card should be recorded as:

* credit expense $100
* debit accounts payable $100

When you write the $1000 check, the accounting is:

* credit cash $1000
* debit owner's draw $900
* debit accounts payable $100

These need to be processed as two separate transactions. For example, the owner might decide not to cash the check, so that would need to be canceled. And you should record things as they happen; presumably the credit card transaction and the check writing didn't happen simultaneously (and even if they did, they might not in the future, so it's better to have a standard way to do things that always works).
posted by WestCoaster at 8:18 AM on March 23