I may be getting a self employed client who only has 1 bank account whereby he uses this for his personal AND business transactions.
Could someone please help in explaining what I should do in extracting the business items and reconciling the bank ? I obviously know how to do a bank rec but I would normally show the year end bank balance as per the physical bank statement in the accounts and any transactions made for personal use would go to drawings (this is when a business bank account is being used).
Should I still do the same with the personal account with all his personal items going to drawings ?? OR not reconcile this bank account in the accounts and just extract the business items ?? I'm thinking its the latter but just need confirmation from you extremely nice bunch of people !
I would reconcile the bank statements & post to drawings. This ensures that by balancing the bank that everything has been entered. Just make sure you have the c/f balance from last year
I agree with both above. Use the bank account and account for anything not relating to the business to drawings. As Lisa said, this way you will ensure that you havent missed out any relevant business expenditure when preparing your clients accounts.
I concur with eveyone too but I would suggest you encourage your client to open a business bank account for business transactions. Not only will this make your life easier it also helps that if there were ever a tax inspection, the inspector will not have to trudge through a million personal transactions and expect explanations of every little amount that occurred years before. Of course the inspector has the right to see personal accounts but it does simplify matters.
