A client is a sole Proprietor and has 5 credit cards line of credit and 1 bank account used for all for personal and business I am not reconciling these .What account should I use for his reciepts credit card/LOC or petty cash
Thanks
Joan
I would recommend that the client separates their personal and business transactions as having things combined can be a real headache come tax-time. Personal information should have its own bank account and the business should have its own bank account. All credit cards should be linked to one or the other as well.
If personal expenses are paid via the business, those items should be classified under a draw/distribution equity account, or a "due from owner" asset account, because personal expenses cannot be deducted for the business (should not show up on the P&L).
I think reconciling these accounts would be a good idea as well; helps ensure the books are clean and accurate in regard to what relates to the sole proprietorship and what does not. I have a client that mixes personal and business things and sometimes it is throwing a dart with him trying to decipher what goes where. If the IRS decides to audit a tax return, we did what we could do considering, but it would be a tough audit.
