Why are transactions coded to an account called "Personal" with my name on it?
<This article refers to using your Transaction Detail sheet which is linked in your Dashboard.>
We use our best judgment when doing your bookkeeping. If a transaction looks personal, we code it to an account called "Personal". So if we have mistakenly coded any business expenses as personal, feel free to correct them. Some common mistakenly coded transactions are:
- Purchases at department stores, which appear to us as personal, but are in fact client gifts. Please note that business gifts are limited $25 per person per year and the amount in excess of $25 per person is non-deductible.
- Payments to the IRS, which are usually federal income tax payments (which are not tax-deductible), but are sometimes payroll tax payments. So if you process your own payroll, and the IRS payments you make are for payroll taxes, just change the account coding from “Personal” to “Payroll Expense”.
- Purchases at grocery stores, which if they are personal groceries are not tax deductible, but are sometimes office supply purchases.
- Owner withdrawals are usually considered a distribution, so we code them to “Personal”. However, if the owner is paid through an actual Payroll, then you should change the account on those payments to “Payroll Expense”.
If there are multiple owners of a company, we don’t know whose equity account a personal expense should be coded to. So we just choose one of the owners. Let us know if we should move a personal expense or contribution from one owner to another.
Transfers to a bank account that we do not track also get coded as "Personal", as these appear to be the owner withdrawing money to their personal account (also known as "Distributions").
Finally, we code all ATM and bank withdrawals as personal, and they need to stay this way. Even if you withdrew the cash from your business accounts to pay for a business expense, we can’t code this cash withdrawal as an expense. In the case that you get audited, they will not accept this. That’s why we code all cash withdrawals as “Personal”, and require you to list any cash purchases separately using your “Add Transactions” sheet, which is linked in your Dashboard. So if you try to change the coding of an ATM withdrawal to “Office Supplies” for instance, we will have to ignore this request. Instead, just enter the details of that office supply purchase into your “Add Transaction” sheet, and we will make sure to record the expense.