Why You Need Business-Only Bank and Credit Card Accounts
Question: I have been using my personal checking account and credit card for my business transactions. Are there any problems with doing that?
Answer: Yes! You are creating myriad problems by using personal accounts for both personal and business use. The term for this is “commingling of funds.” The first problem is blurring the true status of your business, which will cause a tax auditor to double their investigative efforts.
From a practical standpoint, if you keep your transactions separate, you will spend much less time in your back-office administrative efforts.
From a cash flow perspective, it is a best practice to reconcile your bank and credit card accounts each month to know your cash flow. Commingling funds makes this nearly impossible.
Finally, if you are a LLC, or an S or C Corporation, your personal assets are protected from legal action by the concept known as “corporate veil.” By comingling funds, you are “piercing your veil” and placing your personal assets in jeopardy should there be legal action against your business.
When you keep your business bank and credit accounts only for your business, your accounting takes less time, your business is easier to run, and your personal accounts are better protected.
Please email accounting questions you would like considered for the column to HGatter@AccountingSupportLLC.com with the subject line of "Ask the Accountant."
Harriet Gatter, owner of Accounting Support LLC, was an ad specialty distributor for 23 years and an adjunct professor of accounting at Neumann University. She sold her ad specialty business in 2012, became certified as a QuickBooks ProAdvisor, and now works exclusively with ad specialty distributors nationwide on their QuickBooks, order management and accounting needs.