Separating Personal and Business Expenses = Good Bookkeeping

One bookkeeping truism has become very clear to me over the last several years of managing business accounting books: One way to assure that a business has messy, over-complicated books is to manage business and personal expenses from one bank or credit card account.

The inevitable result will almost always be countless hours of your accountant’s time in pulling these expenses apart and cleaning up the books. This translates into extra dollars out of your pocket when your accountant bills you for this additional time – charges that could easily be avoided!

To avoid this mess, designate one bank account and one credit card strictly for business expenses. This will eliminate the time needed to assess whether an expense is for business or personal use. On the rare occasion that a personal expense is paid from one of these accounts for whatever reason, be sure to make a memo note on that check or credit card bill in order to make the necessary adjustment at year-end. This will avoid having to sift through the entire year’s transactions to find that particular expense.

In conjunction with this concept, it is also important to keep expenses and income from multiple businesses segregated to avoid the same sifting of transactions. If you have two separate companies for tax purposes, you should have two separate bank and credit card accounts to manage these individual entities. Do your best not to mix the funds between these two companies, as this will result in additional time and money spent on reconciliation at year-end.

If you are a business owner looking for an affordable way to simplify your bookkeeping processes, you may want to consider RAD (Remote Accounting Department). RAD is a small business accounting package that offers you a secure, web-based platform to manage accounting and bookkeeping tasks. RAD will:

  • Hire and maintain an accounting staff for your business – remotely.
  • Record your bills and help pay them monthly.
  • Record your payroll.
  • Balance your checkbooks & credit cards.
  • Provide critical financial data including quarterly analysis.
  • Perpetual backup with access 24/7.

For more information please visit:

Written by Martha Leonard, Bookkeeper and Tax Preparer, Davis & Hodgdon Associates CPAs

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