Question – A corporation with a single owner pays for personal expenses out of his business account. In the past, they have been recorded under expenses using a category “personal expense” just to track it. I am in the process of transitioning them to payroll for these expenses, but what is the best way to remove the past expenses from the P&L?
In another twist, the son who is not part of the corporation also records “personal expenses.” The intent is to include the son as a shareholder of the corporation but that hasn’t happened yet.
Also, what is the best way to convince them to set up personal loan payment from a personal account instead of the business account so the problem does not perpetuate?
Our response – A loan may not be the best answer unless the owner wants to repay it back to the company. Instead, you could set up a shareholder distribution account. That works for the “personal expenses”.
The son should have no access to funds to cover his personal purchases yet until the shareholder is established. The separation should still be encouraged after as well. Cash flow management is compromised when funds are used for personal expenses.