Personal and business money

# Personal and business money

Keep household money and business money in separate bank accounts. This makes the books easier to read, and it makes the return easier to prepare.

Why it matters

• The business profit should show only business income and costs.
• Personal spending that goes through the business is hard to explain at year end.
• A preparer can check the books faster when the two are apart.

Owner draws

A draw is money you take out of the business for yourself. It doesn't count as an expense.

1. Pay the money from the business bank account to your personal account.
2. Record it against an equity account for owner draws. Create the account in the chart of accounts if it does not exist.
3. Keep a note of what the money was for, if it was a mixed payment.

Owner contributions

A contribution is money you put into the business from your own funds.

1. Record the money received in the business bank account.
2. Credit an equity account for owner investment. The company setup creates one called Owner's investment.
3. Do not record it as income.

Paying a personal bill from the business

Avoid this. If it happens, record it as an owner draw on the day it is paid, and move the cost out of the business expenses. Ask your accountant how to treat the rest of the year.

Estimated tax

Payments of estimated tax by a sole proprietor are owner draws, not expenses. See us-estimated-tax.