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vicenteborga
December 17, 2023
Question

Need help reconciling income/expenses that were co-mingled with personal finances

  • December 17, 2023
  • 1 reply
  • 0 views

I have a sole-proprietorship that I've been running since 2020. For previous years, I kept my own records using Google spreadsheets. Since it was just me working for the business, all of my finances related to the business were co-mingled with my personal finances and I rolled it all into my personal tax return. Early this year (2023), I began formalizing my operation: registering as an LLC, routing all sales and expenses through a business banking account, hiring contractors who I paid through Gusto, etc.

 

I signed up for Quickbooks Online last week to begin putting everything together and here's the problem I'm running into: At the start of the year, before I began the process of formalization, my business finances were still co-mingled with my personal finances. So, I have a substantial number of sales and expenses floating around in my personal checking account, and on several personal credit cards early in the year.

 

I connected my personal bank account to Quickbooks and combed through it, excluding everything except business-related income/expenses. That seemed to work okay, but for expenses that were made on personal credit cards, I categorized them as 'Cash'. Now I have an unreconciled negative cash balance and I'm not sure what to do with it. These were all expenses made on personal credit cards that were co-mingled with other personal expenses and paid off by my personal checking account.

 

Someone told me that one option would be to re-classify these expenses as 'Owner's Equity'. I've tried to find a way to do this, but am running into dead-ends. 

1 reply

JaeAnnC
JaeAnnC
December 17, 2023

Hi there, @vicenteborga. I'm here to help you fix your expenses merged with personal finances in QuickBooks Online (QBO) so you can reconcile them accurately.

 

When you use your personal funds to pay for business expenses, you'll need to record it in QBO. Then, reimburse the money. For a detailed step-by-step guide, refer to this article: Mixing business and personal funds.

 

Since you have a negative cash balance after categorizing expenses made on your personal credit cards, it's possible that they are incorrectly entered into QBO. To resolve this, ensure to record them accurately. I'll share this reference for your guidance: Record your payments to credit cards in QuickBooks Online.

 

In reclassifying your expenses, it's best to consult your accountant for the appropriate accounts to use and keep them in order. If you're not affiliated with one, you can utilize our accountant tool to look for a professional nearby.

 

When everything looks good, you can reconcile your accounts to ensure they are balanced and accurate.

 

Additionally, feel free to check out this article to get an overview of the different areas of your business, including sales and expenses: Run reports in QuickBooks Online.

 

Fill me in if you have additional questions about managing your expenses in QBO. We're always available to assist you further. Keep safe!

V
vicenteborgaAuthor
December 17, 2023

Sorry, in case this wasn't clearer, I am referring to business expenses that I paid for you using my personal checking account.

I've consulted with some other people and I think that I am going to delete the expenses from QBO, calculate their sum total and then cut myself a check from my business. Once the check clears, I am going to go into QBO and use the 'split' feature to properly categorize all of the expenses that that check represents.

Please let me know if you think this is a viable option or if you think there's an easier way to do this.

A
AnneMariee
December 17, 2023

Hello there, vicenteborga. Thanks for coming back with more details about your concern. I'm here to add information on properly recording the business expenses you paid with personal funds.

 

Before anything else, I recommend consulting your accountant for further guidance on accurately managing and recording your expenses. You can use our accountant tool if you need help searching for a professional nearby.

 

Once you're all set, you can perform the steps you mentioned above. You may also follow the ones I'll provide below. 

 

First, record the expense using a journal entry. Here's how:

  1. Click the +New button.
  2. Under Other, select Journal entry.
  3. Select an expense account for the purchase on the first line.
  4. Under the Debits column, enter the purchase amount.
  5. On the second line, choose Partner's equity or Owner's equity.
  6. Enter the same amount under the Credits column.
  7. Click Save and close.

 

Then, record the reimbursement as a check. Here's a step-by-step guide on how:

  1. Click + New.
  2. Choose Check under Vendors. 
  3. Select a bank account to use to reimburse the personal funds.
  4. Under the Category column, choose Partner's equity or Owner's equity.
  5. Enter the amount of the reimbursement.
  6. Click Save and close or Save and new.

 

You may also record the reimbursement as an expense. For more details on how, browse through this article: Pay for business expenses with personal funds.

 

Once you have reviewed your accounts, reconciling them ensures they are balanced and accurate. Here's an article to guide you on how: Reconcile workflow.

 

Please feel free to leave a reply to this post if you have any other questions about recording your expenses in QuickBooks. I'm just one post away. Have a great day!

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