Discussion:QuickBooks sole proprietor question

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Newarcher (talk|edits) said:

31 May 2008
Hi all,


I have been selling my Quickbooks setups to small businesses like crazy but most of the businesses have been new. I have an odd question that I can't wrap my mind around.


My client has been operating a business whereby he uses one account for his personal and business transactions. I am setting up his Quickbooks installation (no brainer) but how do you guys deal with the mixing of personal and business transactions?


I see that I have two options:

1) Balance his checkbooks to current date, input all personal transactions into a 'personal' account and have him reimburse the business for those historical accounts and then do it right going forward.


or


2) Balance his checkbooks to current date and then backtrack his business balance to Jan 1 and starting his Quickbooks installation from there with only business transactions. He is getting ready to form an LLC which will require a separate checking account so going forward this will be a non-issue (provided I can train him to use his own account for personal transactions).


What would you guys suggest for how to get his business transactions separated from his personal and into QB?


Thanks,

Michael

Actionbsns (talk|edits) said:

31 May 2008
I know this will raise the shackles on some people's neck, but I'm a sole proprietor and I do this with the checking account and my AMEX card. Years ago I kept two checking accounts, but I was always having trouble moving money between the accounts and the bank was always upset at me for asking them to do it over the phone. This was before internet banking. So I closed the personal account and have only maintained one account since. In QuickBooks I post all my personal charges to Owner's draw. I have two subcategories there that are only for my benefit, Medical and Taxes. All other charges go to the business expenses. If I were to incorporate or become an LLC, I'd probably have to do this differently, unless I were a SMLLC, then I don't know why I'd need to change.

Newarcher (talk|edits) said:

1 June 2008
Don't feel bad Actionbsns, you probably represent a majority of sole proprietors. I hadn't thought of owner's draw but that makes sense as well.


I am a purist so I try to keep everything separate....I think that in the event of an IRS audit it keeps things much less complicated and keeps the IRS from expanding into your personal finances. But that is just me.


Thanks for the reply, good to meet you, well kind of meet you anyway.


Michael

LemRI (talk|edits) said:

June 1, 2008
I also try to keep everything separate. It seems like doing that puts you in the minority.

But I'd go with the first option. This personal account should probably be an "equity" account, essentially an Owner's Draw. In reality, it's a wash if you created an expense called "Personal Expenses" and knew it wasn't deductible. It's just a matter of where it's recorded. Some S/P's just seem to have satisfaction knowing these "expenses" are on the income statement. Yet knowing that they don't belong there is equally as important.

Hopefully he is good once he converts to an LLC...

And Actionbsns, you'd need to stop doing that as a SMLLC. If your sued, you could lose the protection the LLC offered by failing to maintain corporate formalities (aka piercing the corporate veil).

Actionbsns (talk|edits) said:

1 June 2008
Lem, you mis-read my comment, I am a sole proprietor. If I were to become a SMLLC, I would probably have to do things differently. You are right about piercing the corporate veil, so I would, then need a personal account - or be taxed as an S corp, which would make JR so very happy.

LemRI (talk|edits) said:

June 1, 2008
Action -- Perhaps I misstated my comment. I meant IF you were a SMLLC. You are a S/P, so it is fine, as long as you can distinguish what is what.

Natalie (talk|edits) said:

June 2, 2008
I would put all of the personal expenses to owner's draw on the balance sheet. They do not belong on the income statement.

Newarcher (talk|edits) said:

3 June 2008
Thanks all....


Talked with my client yesterday evening and he 'found out' that his sister -- who happens to be a bookkeeper somewhere -- knows Quickbooks 'really well' and decided that both she and his mother would handle the QB installation and setup for him. Note that these are the same people who thought it was a good idea to summarize his financial transations on notebook paper, classify gas, equipment rentals, and automobile parts in the same account--excuse me on the same notebook paper page, and couldn't add correctly. Lord help the kid, he's going to need a priest when this is over. In the mean time, momma's new washer and dryer will just have to wait!

I will just enforce the $60 per hour charge to clean it all up come tax time and make my money then.


Michael

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