Spending money within our business for personal things is something I believe we have done and are guilty of from time to time, myself included. Before having a main business account, we are forced to use our personal account.
Now that we have a bank account and QuickBooks set up, we don’t need to use our personal account. Of course every once in a while, we pull out the wrong debit card. These things happen.
(I will be calling QuickBooks QBO, which stands for QuickBooks Online)
So, what do you do?
First things first
In order to track business expenses effectively, you will need to avoid using your business account for personal. Take it from someone who has gone through several different accounts that have more personal than business. Trying to close those books out each month is a nightmare.
DON’T USE YOUR BUSINESS FOR PERSONAL!
Did I do that?
For those of you from the 90’s era, you remember Steve Urkel. Every time something went wrong, he would shout out,” Did I do that?” Steve was funny when he said this, but mistakes happen. Take responsibility and label the transaction correctly.
Personal Expenses Categories
To help with this, you will need a personal expense equity account. By creating this account as equity, you are able to separate it from the rest of the business expenses.
Before going into the steps below, in Charter of Accounts, there is a filter by box above all the accounts. Type in personal and see if a personal expense equity account pops up. If it doesn’t, follow the steps below.
How to create that account
In order to correctly categorize your expense in QBO, you will need to create a personal expense equity account. To do this, you will need to
- Go into your Charter of Accounts which is in the left side bar within Accounting.
- Click on the Green button labeled New which is on the top right of all the accounts
- A new screen will pop up called Account.
- Under Account Type select Equity
- Under Detail type select Personal Expense
- Under Name, call it personal expense(QBO may name it for you)
What to do when it happens
This is where the rubber hits the ground. You know that this mistake has happened. Take a breath, these things happen.
When the bank feeds that transaction into your QBO, you will find this under menu Banking, Banking. Find your business account and that transaction will be listed below in Tab For review.
- Click on the transaction
- Under Vendor/Customer select a payee, if this is the first time, you will need to create a new payee. Name it and Save.
- Under Category Select Personal Expense Equity.
- Click the Green Add button on the bottom right.
That’s it, hopefully I was some help to you. If you have any more questions, feel free to ask. My email is Nate@prophetsbookkeeper.com