Why You Need Business-Only Bank and Credit Card Accounts
Ask the Accountant…
Question: I have been using my personal checking account and credit card for my business transactions. Are there any problems with doing that?
Answer: Yes! You are creating myriad problems by using personal accounts for both personal and business use. The term for this is “commingling of funds.” The first problem is blurring the true status of your business, which will cause a tax auditor to double their investigative efforts.
From a practical standpoint, if you keep your transactions separate, you will spend much less time in your back-office administrative efforts.
From a cash flow perspective, it is a best practice to reconcile your bank and credit card accounts each month to know your cash flow. Commingling funds makes this nearly impossible.
Finally, if you are an LLC, or an S or C Corporation, your personal assets are protected from legal action by the concept known as “corporate veil.” By commingling funds, you are “piercing your veil” and placing your personal assets in jeopardy should there be legal action against your business.
When you keep your business bank and credit accounts only for your business, your accounting takes less time, your business is easier to run, and your personal accounts are better protected.
Please email your questions to Harriet at Ask The Accountant.
QuickBooks Premier and Enterprise can be modified to better serve ad specialty distributors. Harriet Gatter is a QuickBooks ProAdvisor, a former accounting professor and a former ad specialty distributor. She advises ad specialty distributors to use QuickBooks Premier and Enterprise, often in conjunction with other industry-specific software, to manage the complexities of the ad specialty business, with the results being time saved, errors eliminated and an overall accurate accounting of your business. Contact her at firstname.lastname@example.org.