Client who co-mingles personal and business transactions

TS4705 · ‎January 31, 2024

I took over bookkeeping for a client who co-mingles personal and business transactions.

The previous bookkeeper created an equity account named “Due To / From Owner”. Both deposits and withdrawals/expenses go to this one account for the following:

When the business owner uses his business credit cards to pay personal expenses.

When he transfers money out of the business account to his personal account.

When he deposits money into the business account from his personal accounts. None of these deposits to the business account are specifically to repay the personal expenses – he just deposits random amounts. So the two amounts (debits and credits) never match – there is always either a positive or negative balance in “Due To / From Owner”.

I noticed that some years, the expenses are greater than the deposits and vice versa so the “Due To / From Owner” account is never zeroed out.

FYI – he is on payroll so these transfers out of the business account are not for that.

I’m finding conflicting solutions on QBO’s support pages. One of the solutions stated a journal entry should be created. Another solution states to enter the purchases as an expense and assign them to Owner’s Draw and his deposits as Owner Equity. And, sometimes the videos do not match the instructions.

I need one correct step-by-step solution. Can someone out there please help me with this?

RhoiceW · ‎January 31, 2024

Welcome to the Community, TS4705.

We appreciate what you've done so far to your account. No worries, I'll be glad to provide some steps on how to track your expense transactions and keep your account accurate.

In terms of the existing records of the previous bookkeeper, we can't confirm as these require accountant expertise. However, I can provide steps for recording this in QuickBooks Online(QBO).

Here's how:

Click the + New.
Choose Check or Expense.
Pick a Payee from the dropdown ▼ menu.
Select the Bank Account, Cash Account, or Credit Card you used to make the purchase.
In the Category details section, select the dropdown menu ▼ to select the tax category that fits your needs.
Enter the Amount of the purchase.
Select Save and close or Save and new.

Also, you can check this article for detailed steps on how to handle a personal expense in a business account in QBO: Pay for personal expenses from a business credit card or bank account in QuickBooks Online

In addition, if you want to learn how to record and customize expenses in QBO, you can check this article: Enter and manage expenses in QuickBooks Online

Feel free to leave a comment, if you have other concerns about business transactions. We're always here to help.

TS4705 · ‎January 31, 2024

Thank you, but the solution proposed doesn't address my question of how to handle mixing business and personal account transactions. I viewed both of your suggested links before posting in this forum.

Perhaps it would help if I re-word my question:

Should I continue posting to the liability account, Due To / From Owner, for:

- Personal funds deposited to the Business account, and

- Personal expenses charged on Business credit cards, and

- Business funds deposited to Personal accounts

OR, should I post to equity accounts as follows:

- Personal funds deposited to the Business account post to Shareholder's Equity: Contributions

- Personal expenses charged on Business credit cards post to Shareholder's Equity: Distributions

- Business funds deposited to Personal accounts post to Shareholder's Equity: Distributions

OR, do I add another type of account? If not, what's the proper way to handle this?

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