Bookkeeping best practices dictate that your business should pay for its purchases with its own money, but is that realistic? Haven’t you ever reached for the cash in your wallet or a personal credit card to pay for a business expense? If you’ve never done it – you’re my new hero! The reality is, we’ve probably all done it at one time or another. So what’s the best way to record these transactions into QuickBooks™, given that it didn’t affect your business cash?
The solution – become a bank! (That would solve a lot of problems, wouldn’t it? But we’re talking about recording bookkeeping transactions here.)
What I mean is, set up your Owner’s Draw or Due to Shareholder account in your Chart of Accounts using the account type “Bank”. Now you can pay bills, record cheques, accept payments from your customers or record any other type of transaction that a bank account can do in QuickBooks™.
Of course, you want to minimize this type of activity – it really is best to use your business bank or credit card whenever possible for many reasons, not the least of which is that owner-paid transactions aren’t in an account that gets reconciled. This means you have to be extra-vigilant in monitoring your transactions to make sure you capture them all and don’t post duplicates. But for those times when using your own money is either necessary or far more convenient, this is a handy way to record transactions and track both investments to and draws from your business.
At year end, your accountant or bookkeeper can move the balance in your “Owner Bank” temporarily to an appropriate account on your Balance Sheet for financial statement presentation.