Level 15

Account management

You started here: "I have 25 entries from Walgreens and I coded them as Home Expense not Tax Related.  Now I find out in talking to my son, who is a dentist, that all of those checks to Walgreens were for the office and should have been coded as Office expenses which is a tax related item."

 

We simply pointed out posting "personal" as Expense is Wrong for the business. You are keeping the business' Financial records. Personal never hits P&L; it is Equity.

 

Here is your Next Change to implement, then: "who likes to pay for business expenses out of his personal account, as well as his personal purchases you have to get creative"

 

Make a bank account and name it Owner Funds. Use it to enter What he bought with personal check, credit card or cash. You don't track the personal Checking account or credit card in business, which allows you to stop entering Personal at all. Not as Expense, and not even as Draw. All you will track is "owner Paid" for every Business activity.

 

Now you have one Bank type account that runs negative, since it holds his Spending for business. Remember, we don't care How he paid. Just that he Paid Personally, and we want it to be a business entry. So, on occasion, perhaps Monthly or quarterly, or at the least, at Year End, make one Deposit entry. This will be listed as "from" Owner Equity (contribution) to bring the Owner Bank up to 0. Reconcile it to 0 at year end, to show you Addressed that activity and confirmed it for year end.

 

And you still have not told us the Tax Entity type, so that description is what a Sole Proprietorship would do.

 

This would be different: "Then to reimburse himself, he should take a draw out of that Owner Equity account, to pay  himself for those expenses."

 

In the case of a Corporation, the person is an Employee being reimbursed under the terms of An Accountable Plan. That means, for example, he picks up Printer Paper and Stamps on the way to work, paying for them personally. He turns in the Receipts and the supplies, and I write a check to reimburse him using Office Supplies expense and Postage expense. The company is buying from him, what he bought on the way to the office.

 

"Or could he claim these as un-reimbursed business expense on his personal tax filing?"

 

That doesn't exist any longer. The TJCA of Dec 2017 did away with this provision; you want to handle it Properly within the business accounting.