Total newbie to accounting and QuickBooks Self Employed here.
I'm sure this is a very simple question to answer, but when I started with QuickBooks Self Employed, I connected to my bank account, and I have the starting deposit (from my personal funds) that needed to be reviewed and accepted.
My questions are:
Is that deposit considered Income or Personal, and is there anything else I should know about with regard to that type of transaction?
How should I deal with that in the future if I need to add more funds in the future? (I don't anticipate it, but just in case...)
Welcome to the community. That's an important question - and also where QuickBooks Self-Employed shines.
If your starting deposit was from personal funds and not income from work, that's considered personal. There are tax implications for what you claim as income, so you want to make sure you keep personal transactions separate.
When your bank account downloads transactions, you can review, split and easily categorize them one-by-one. If a transaction is "business" related (i.e. expenses related to the production and sale of goods and services), you would mark it as "business;" conversely, if a transaction is something personal (expense or income) that isn't related to your business, it can't be counted as income - you separate that money by marking it "personal."
One way folks solve this dilemma opening up a business bank account or credit card that is only used for business-related expenses. That way, when the transactions download, you can confidently mark 99% (there are always one-offs) of them as "business."
The bigger challenge comes from using assets (such as a car, bike, computer, etc) that are used for both personal and business. Do you run into any situations like that?
Awesome. Thanks for the comprehensive answer. That makes sense.
I actually do have a totally separate, new bank account for this business, which I'm hoping will make this all easier.
I'm assuming the same is true when I need to make a draw. If I want to move money to a personal account, I would write a check to myself (personal bank account) and then mark it in QBSE as a personal expense, correct?
Glad this helped! I hope I was clear enough, let me know if you need any further explanation. Also super happy to hear you were proactive and already looked ahead to separate your accounts. I have friends who own businesses who after 2-3 years still try to parse out all their expenses from a single credit card every month...
If you were to add money into your accounts from personal finances, that becomes Owners Equity. You'd move money from a personal account into a business account via a check - that first expense would be personal, and from then on the draw would be from your business. @lynda's firm wrote a good piece on this for QuickBooks Online - even though you're using QBSE, the accounting principles are the same and you should be keeping track of deposits/draws the same way.