Small business book keeping.. do i record ALL my expenses?

Question

Do i record all my household bills etc.. from my business account? have just started a business and only have the one account which I pay all my household bills etc from too..is this wrong or right??? HELP!

Answer 1

You should have 2 separate bank accounts 1 personal and 1 for your business that way it is easier to keep track of what is happening with you business. You should pay yourself a salary at the end of the month and that is what you pay your household bill with. You have to keep a record of all expenses and income for you business.

Answer 2

Hi Ken,
you need to keep your business and household accounts well apart. It's really so the tax can see a paper trail and you can prove what you've earned and what you have spent on legit expenses.

I would get yourself some software to do all the work for you. There are some really good free programs around or just use excel. You just want a simple template.

I keep saying this to people but I say it again, I joined the A.I.B
and got tons of help and some really good tips. have a look at
www.independent-business.org.uk Good luck and get that business account opened. Alliance & Leicester give 2 years free banking.

Answer 3

Hi Ken

You must have a separate bank account for your business. This is a very basic requirement for the IRS to prove this is a business rather than a hobby.

You can't deduct expenses related to a hobby, but you can for a business.

When you begin your accounting, there are plenty of software choices for a business (quickbooks and peachtree are fairly common), but if you are small and not particularly comfortable with accounting, then a manual ledger (Look for the Dome series at Office Depot/Office Max/Staples) is fine.

Depending on your business, do a google search for something called a chart of accounts for your field. Say you started a lawn mower repair shop. Do a search for "lawn mower repair chart of accounts". This will give you a starting point for how to categorize your expenses. Think of your personal checking account. You have different categories for your groceries than you do your mortgage payment. You need the same thing for each type of business. A small engine repair shop is going to have different categories than a retail shop.

You are also going to need a separate checking account and depending on your business, you may want to incorporate or form an LLC. If you want to form a formal company (incorporate or LLC), you will need a federal tax number which is the equivalent of your company's social security number. If you just want to stay a sole proprietor, then using your social security account is fine. I bring this up because banks won't allow you to open a business account as a corporation or LLC without the federal tax number.

Here are some other things you likely need to address as a new business according to the IRS:

http://www.irs.gov/businesses/small/article/0,,id=99336,00.html

Answer 4

Depends on if you operate your business from home... if you do, you can deduct a certain percentage of your bills at the end of the year as a business expense.

If your business is else where and you just use one account for both, only record what you spend on business expenses in your business log.

Answer 5

You should account for any household expenses as 'Drawings'. The best way to keep your accounts is to buy a 'Simplex' Sole Trader Account Book from one of your Traded Warehouses and use the headings to record your figures.
You will find space in it for all the accounting you need to submit to an Accountant and it makes the Accountant's job easier and your costs cheaper because he will just take one column of 'personal drawings' and assess any taxable items.
Good Luck. I was Self Employed for over 40 years.

Answer 6

your business 'accounts' ie records of all your business transactions can be quite different from your bank account especially if you are using it for personal use too. do not get these mixed up other wise you could find yourself in trouble with the tax man who will then look through all your business with a fine tooth comb!
you need a book, or use an excel spread sheet etc. to list all your business spending and business income. if you work from home you could put a few pounds a month for home utility bills etc - but do not put all your bills in your business accounts/books!
i would suggest you take a look at the info on these sites to help you further, and then perhaps contact business link or any start-up ventures in your local area as they can offer you free advice. HM revenue & customs also run free workshops to help people with small business book keeping.. see the links below:
http://www.businesslink.gov.uk/bdotg/action/layer?r.l1=1073858805&topicId=1073860617&r.l2=1073859158&r.s=tl
http://www.businesslink.gov.uk/bdotg/action/directory?r.l1=1073858805&r.l3=1073860617&r.l2=1073859158&r.s=h
http://www.hmrc.gov.uk/pdfs/sabk4.htm
http://www.hmrc.gov.uk/bst/index.htm

Answer 7

You should ensure that your business pays a proportion of your household bills - change the direct debit on your phone bill so it comes from your business account etc.

Answer 8

No, you should only record the business expenses on your business books. It is not preferable but okay to use only one account if the business is a sole proprietorship, but any other form should have its own account.

When I did freelance bookkeeping for a realtor couple, they used one account for all their expenses. QuickBooks was very good in allowing you to code the outgoing money to different accounts, including draws (personal expenses).

Answer 9

Set up a seperate business account. Lodge to your own account from your business account if you're paying yourself, and pay your bills as usual from you own account.
Your business account should really only have your business transactions on it.

Answer 10

The business and household accounts must be different.
Take care.
THANKS