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“It s patti scharf. Cpa and co founder nof. Catching clouds. The leader in e e commerce accounting today.
We re going nto talk about commingling funds. So we re be talking about how if you are we nsee this all the time with serial entrepreneurs they have let s say three ndifferent businesses or even two they ve got two businesses and sometimes they nuse. This company s accounts to pay for this company stuff or vice versa. And it njust becomes kind of a jumbled mess or maybe you are starting out as a sole nproprietor and you re using your personal credit cards to pay for your nbusiness transactions.
But you re also using the same card to pay for your npersonal stuff. So this is what the video is going to be talking about we re going nto talk about why or why you should not do that and then how to fix that in your naccounting. So let s get started. So why shouldn t you use one account to pay for ntwo different entities stuff.
That s going on and the reason is first and nforemost. If you have a separate business. Let s say you set up a limited liability ncompany. Because you want that liability protection.
You are jeopardizing the nliability protection. You might want to talk to your attorney to get more ninformation about that i m not offering legal advice because i m not an attorney nbut. I can tell you the irs in particular does not like it. When you are using your nbusiness account to directly pay for your haircuts and your meals out for you npersonally or your groceries or whatever.
They think. If you have a separate entity nyou have to treat. It as a separate entity and let it pay for its own stuff. Nso set up a business bank account and use that just for your other company nanother reason you re making it so much harder than it needs to be when you ve ngot.
One account that has both business and personal transactions in it then you nhave to go through and comb through and find out okay. This is for this and this nis for that and it just makes it really confusing especially if you re using an naccountant if you re using an accountant hey you re driving them insane. But it s nalso you you have the opportunity of maybe missing some actual valid ndeductions just because everything is coming gold. If you re only using your nbiz.
This card for your business expenses you nknow all those need to go somewhere. And you re not missing anything okay. So nlet s say you have changed your ways. And you are gonna run out and set up a nbusiness bank account.
A business credit card and use it only for this other nbusiness. What are you doing your accounting to nclean up all the past stuff let me show you okay so i m using an example here nwe re gonna pretend we ve got business a and business b and we re gonna pretend nthat all of this stuff was spent on business b s credit card okay the first nthing we re gonna do is we re gonna download this from the bank or the nfinancial institution that you got it from and then we re just gonna pop in oh nthis relates to business a a a b a b. What whatever and you just go through nand you you identify them so what this is telling you is these are all the ntransactions on b s card..
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But it does anything that says a actually relates to na so a technically owes be 5000. You know fifty six hundred dollars for the nuse of this credit card. It s a loan to b. So what does this look like in the books nall.
I did is i added. A couple of columns here one for account and one for tax ntype and then i shaded out the ones that related to b. So. This is on book.
A s nbooks. I went through and this goes to account 652. So if you re using account ncodes in your accounting system. You can see that this equals.
Let s say office nsupplies and this equals gifts and this equals. Postage or whatever you just ninclude that account number going down. I would also include a tax type. And i ll nshow you why when we get to that part in xero.
So you you basically just go nthrough. And you categorize things the way they need to be we will actually nignore all of the b transactions for a s purposes. But at the end of the day nyou ll see if you were to add up all of these transactions for a it s going to nequal 5600. So in a books they ve spent 56 ndollars for these various purposes and we are actually recording those to the nexpense accounts or the asset account like this is inventory.
Those are going nto go where they need to go. And we re going to completely ignore all the b ntransactions okay okay so here we are in xero. I have set up this fake bank. Naccount called inner company clearing now this may not be technically.
If it nwould be an inner company clearing account. Usually that has to do with like nthere s a parent company and a subsidiary that s really what nintercompany relates to but i kind of call anytime that we commingled stuff in nour company. Just because it s the same thing in theory. It makes sense to me so nwe call this inner company clearing.
We set it up as a bank account. Just by ngoing to bank accounts. And add. A new bank account.
And then it s gonna show up non your dashboard and then what we re going to do so we re going to open this nup and we re going to manually import a statement. Okay so i copied this over i ncleaned it up a bit actually we don t need this column. Either nyou ll notice that the only transactions..
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I have left here are the ones that nrelate to a because again we re using company b s accounts. We re not using a s naccounts. So it s not we don t need to include company b s accounts that they nare legally responsible for on company a s books. But we do want all these ntransactions in there so so we ve got this all cleaned up all we have left is nthis stuff tax type account and then the details of the transactions and we re njust going to download this as a csv file now we re going to go over here and nwe are going to manually import this csv file.
We will click browse and we will nfind that file and we will import it the system will ask us to map the ntransactions. It s not totally sure what we want to do and so we re going to make nsure that the transaction date. Matches the transaction date. I m going to nactually change this to the payee transaction.
Amount is correct and then nthe account number is going to be account code and nthe tax type is going to go to tax type. Now. The reason why and actually you can nlook over here. And you can see what it s going to look like in xero when this ncomes through so if you scroll through you can see it s all going to come nthrough.
These are going to be debits. Which is what you re looking for and and nyou don t want to import the first line because those are all headings and nthat s really what we re looking for the reason. Why you include the tax type is nif. You include the code and the tax type and this other information.
It will nautomatically reconcile all these transactions for you so you don t have nto go in later. And do all the okay okay okay okay. So we say okay and you ll nnotice. They re all just in here.
The way you wanted them to be see so pretty all nspent and everything yay and the only one that s left is the supplier. One nbecause. Oh. Because it s going to an asset account.
So it s probably asking nfor more information. Okay the inventory account actually didn t exist wasn t set nup so i m just using computer equipment just to speed things along okay so now nyou have all these transactions in here. You can see they re all itemized. So you ncan see one by one what it was that that this company spent the money on so nthat s great.
But you have this negative fifty six hundred dollars setting in nthis fake bank. Account that s on your dashboard. And you re like um. What do i ndo with that the the whole concept of a clearing.
Account is basically just an naccount that allows you to get information in here and manipulate. It nand make it easy for you without creating problems. And so this should nalways always end up as zero..
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Once you ve done doing whatever. It is nyou want to do so. What we re gonna do is we re going to create a received money ntransaction. We re going to have that come from business be like this we ll just do it today.
It s fine usually ni. ll do these like if somebody s commingling business and personal naccounts. I ll do a whole month at a time and then just at the end of each month. Ndo this kind of transaction.
So it s actually a loan from business. Be the ntotal was okay and loan business be okay so when we save that you ll see that the nbalance ends up being zero. There s not a transaction here that we can reconcile nagainst. So we re going to do it by hand.
If you go up. Here. You ll see this either ndisabled mark is reconciled or enable. Marcus reconciled.
You want to make sure nit says. Enable market like if it says disabled. Then don t touch it. Because you nalready have this function down.
Here. If it says enable go ahead and click it and nthen you re gonna go down here you re going to select the transaction you want nand click marcus reconciled. And that s going to zero everything out and show nthat everything is reconciled yay. So you can see it s all all clear nexactly.
The way you want it if you look on the dashboard. It ll show you the same nthing and then if you look at the at the income statement. It ll show all the ntransactions that we just imported should be included in these numbers and nif you go to the balance sheet. You will now see a loan on the books for 56 12.
Nyay okay. So that s exactly what we want to nsee. So that s what you would do on their set of books for business be it s going nto be a little bit different. If you were to look at bay s books nbusiness be this actually is their credit card.
So they want to include all nthe transactions on their account. And anything that relates to b is going to nbe coded to the expense account that they want it to go to so like this is nfor meals and entertainment. This one is to these are blank nbecause..
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They are payments on the account. And i ll show you why about that in a nsecond to all of the other transactions anything that relates to a goes to 180 nthat is a loan okay so remember that we are using business b s credit cards so nall of these transactions belong to business b. They should be automatically nif you ve set up the bank feed for this credit card. They should already be nflowing in and coming in if not or if they re if you re using a funky credit ncard that doesn t hook up with zero.
I think those are rare but i suppose it s npossible you can manually import them just like you did the other one so in nthis case. I ve cleaned everything up again you ll notice. I m including both a nand b in these transactions because again this is b s credit card and i m ngoing to download this as a csv file and import it into this account so you ll nsee it s empty. I m going to manually import the statement again do the same nthing and when i import it it ll pull everything in so again.
We ll go through nwe. ll make sure that these match again. This is going to go to the account code nthis is going to go to tax type. And it will automatically import everything in nall reconciled and everything boom.
All right so the only things that are left nare. These ones that i had empty like there was no account code for them the nreason. I left them blank is because they are payments from the bank account. So nwe re actually just going to record that as a transfer that came from the nchecking account for both of those and we re done so you ll see this credit ncard has a balance this balance is the total of everything that transpired.
Okay nit s fine. If this isn t zero because the balance is whatever the balance is with nthe credit card company. Okay makes sense so so all the transactions are in here nyou ll see ins and outs these were payments made on the credit card. Okay nnow you ll notice if you go to the balance sheet.
You ll see the loan for nbusiness. A is fifty six twelve thirty seven. So nthat is so that s the exact same and you ll notice that on their books. On nbusiness b s books.
The loan is fifty six 1237 as an asset. That s because business. Na. Owes business b.
This money and so business b. Is just waiting for that nmoney to come in and then for the other company it ll show up as a liability ndown here and they are exactly the same amount that s how you keep them in nalignment. And it should always be that way so i hope you found this helpful if nyou did please like share comment and if you haven t already please. Subscribe and nwe ll catch you later ” .
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