I am very new sole proprietor who is in possession of one bank account and one credit card so I have to make purchases on both. I will rectify this as soon as possible, but it's not possible at the moment. Quickbooks Self-Employed is connected to my bank account, but I'm wondering how to classify transactions. Example:
Make a business purchase on a credit card and mark that purchase as a business expense
Pay off credit card. How do I categorize this?
Money to pay credit card comes from my personal bank account. How do I categorize this?
Thank you so much for all the help. I am really looking forward to getting a separate account soon and making this much much easier.
Welcome to the QuickBooks Community space, thoughtlessopinions.
I want to share some insights about classifying transactions from different accounts.
For your first question, you can connect your bank accounts to the system to automatically download transactions. From there, you can manually categorize to business expense or personal.
All of the transactions coming from your bank will show the name of your financial institution. Just in case you still need to connect the two accounts, you can follow the outlined steps below:
Click the Gear icon.
Click Bank Accounts in the drop-down menu.
Enter the name or the URL of your bank in the search box.
Enter your sign-in info you use at your bank's website and click Connect securely.
For your second and third concern, you can use the transfer between accounts. When you move money between two different accounts, you'll see two similar transactions. The credit card transaction will be an expense while the personal bank account would be an income. Please note that both of these transactions will be marked as Transfers.
Thank you for the response. I'm sorry I'm still a little confused about doing this properly. I'm going to lay out an exact scenario and if you can help me classify them that would be great!
I have one bank account and one credit card connected to my quickbooks so the transfers have already been put into my quickbooks account.
Transaction 1: Expense on credit card for $50 of office supplies
Transaction 2: Personal Expense on credit card for $50
Transaction 3: $100 transfer from Bank Account to Pay Credit Card
Transaction 4: $100 credit to Credit Card
How I am currently classifying these transactions that I want to make sure is keeping my books as clean as possible:
Transaction 1: Business - Supplies
Transaction 2: Personal - Personal Spending
Transaction 3: Transfer - Personal Spending
Transaction 4: Split of $50 "Business - Credit Card Payment" and $50 "Personal - Personal Income" (because there are no other options in my Quick Books Self Employed that I can find for personal).
Other than doing a percentage split I can't figure out how to categorize Transaction 3 as anything other than Personal Spending. If there isn't any option, would it be the best to make two separate payments? So then I categorize one of the transfers as a Business and one as Personal?
Even as a Sole Proprietor, I'd recommend you open a second Credit Card and Checking accounts. It just makes life so much simpler in the long run to track business expenses. Use the business Card/Checking accounts ONLY for business. User your other cards/accounts for all personal purchases (spouses income, inheritance, lottery or whatever).
If you've created a business name, it also allows you to open the checking account in that business name IF you have properly registered the DBA Name (Doing Business As), the bank will want the business registration (or whatever is required in your city/state) to use that business name. (Credit Card name doesn't matter, the "card name" they ask for is always going to be yours.)
In QBSE set up the new Banking and Credit card accounts. All charges get entered into the credit card account with the appropriate expense account noted. The monthly credit car payment should be paid from the business checking account. All other business related checks should also be paid from from the business account (obvious, but just wanted to state it for the record).
If you need to add money to that b. account (or take money out), you simply need to make a transfer to/from your other accounts and and use the [Your Name] Equity account to track the transfers in and out. Entry could say something like Owner Deposit or Owner Draw to keep things simple. NOTE: Check with your accountant on this one. They may want you to have Sub-Accounts to better track the Equity you put in or take out of the company. They may also want you to use some other account if this is an existing SE company and you or they have been using different named accounts in their records for prior years. (Shouldn't matter, but it's a quick question to ask.)