Do Not Mix Business with Personal: 4 Steps to Keeping Transactions Separate
As the wife of a very successful entrepreneur, I felt compelled to write this blog post.
Last Sunday, my husband and I took the kids to the local movie theater to watch Zootopia (fantastic kids movie by the way). When we get to the ticket booth and are ready to pay, my husband pulls out his business credit card.
Me: Honey, what are you doing, you can’t pay with that.
Husband: Why not?
Me: Honey, have you ever heard of the Economic Entity Principal in accounting?
Me: AKA, DO NOT MIX BUSINESS TRANSACTIONS WITH PERSONAL TRANSACTIONS!
Let me explain a little further; the economic entity principal is a guideline we use in accounting, which requires business owners to keep personal transactions separate from business transactions. The purpose of this principal is to ensure that business financial statements only reflect the revenues and expenses of the business. This ensures that business owners are providing third party users of financial statements, such as banks or future investors with the most accurate information. Third party users are always interested in seeing that a business has good cash flow and profitable operations.
In addition, as business owners we do not want to give the IRS any reason to audit our books or charge heavy penalties and fees for not treating a business account, like a business account.
4 Actionable Steps to Keeping Business & Personal Transactions Separate:
- Write yourself a check from business account
- Deposit this check into your personal bank account
- Charge personal transactions, including movie tickets from a personal credit or debit card
- Bookkeeping basics
Want more actionable bookkeeping tips to help you maximize profits, reduce expenses and BUILD WEALTH?
Let’s Talk! Until then your virtual bookkeeper, Alex.
Alexandra Frederique is a Virtual Bookkeeper & Business Instructor who enjoys working with numbers, as much as she enjoys working with people. She believes that with the right mindset, it is possible to build wealth & live an ELITE lifestyle. To learn more about her, or get in touch, visit her site Elite Financials.
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