Here’s What to Do When Personal Expenses Get Mixed with Your Etsy Business – Advice from an Accountant

Ahhh…it is that time of the year when you are way too busy to worry about the accounting and bookkeeping side of your handmade business. I get it, with Black Friday coming up, the last thing on your mind (and maybe ALWAYS the last thing on your mind) is the accounting and bookkeeping for your store. 

Many of you are WAY too busy now crafting and creating to worry about such a BORING topic…

But what happens when you are so busy that you accidentally swipe your personal credit card for an Etsy business expense? Or worse yet, you do not even have a business credit card or bank account and you just mix the funds together in your personal account? Can you still take these deductions for a business expense? 

There are three main “money mixing” scenarios that can happen.

1. You have a business bank account and buy something personal.
2. You have a business bank account BUT you pay for something for your business on a personal card.
3. You do NOT have a business bank or credit card and “mix” your personal and business funds together.

If any of these sounds like you, then do I have a blog post for you!

In this post I am going to tell you what to do if you use personal money on business expenses OR vice versa, you use business money on personal expenses, but before we do, Grab some other FREE resources. These go over WAY more than what to do with personal and business expenses…

If you do NOT have a business bank/credit card account and you “mix” the funds…

It happens… You are so busy setting up shop that you never actually set up a business bank account and everything is deposited and spent out of your personal account. How do you keep track of this? 

Here is the way I would do it…

Every month, go into your bank account or credit card and download the transactions into an excel (or numbers) format 

1. While in excel (or numbers), manually go through and highlight in yellow (or your favorite color) ANYTHING and EVERYTHING that is business-related 
2. Separate out ALL of the highlighted transactions and copy these transactions and put them on a new sheet or workbook 
3. Paste these transactions into the new sheet or workbook, so they are separated out so you ONLY see the business-related expenses 
4. Take these business-related expenses and put them into your accounting or bookkeeping system, whether it be another excel, QuickBooks, or Wave

If you have a business bank account and buy something personal… 

This happens all of the time and IT IS NO BIG DEAL. You are out at the store and accidentally swipe your business card for a personal purchase. 

If this happens, here is what I would do…

1. When going through your bookkeeping (hopefully you have a system) make note of this transaction as you are recording it.
2. When you come to this transaction, record it as a “Loan from Owner” OR record it as an “Owner’s Pay and Personal Expenses.” 
3. The “Loan from Owner” is a Liability Account and the “Owner’s Pay and Personal Expenses” is an Equity Account.
4. What this does is remove it from allowable business expenses you have and places it like you paid yourself, which in this case you kinda did right? You took money OUT of the business and used it for yourself.
5. If you are really good, you will then pay back this money to the business and when you record this transaction it will go to the same account when you took the money out, like it never even happened. 🙂 

If you have a business bank account and use a personal card to buy a business product.

Ok, so you are on Amazon or out at your favorite store and you need to buy some products for the business and you COMPLETLY forget to bring your business credit card, or you are so rushed that you forget which one IS your business credit card and you accidentally swipe your personal credit card. Again, this happens ALL THE TIME. While this is common, it is NOT recommended for several legal and bookkeeping reasons…

BUT if it does happen, here is what I would do…

1. Take the receipt of whatever you purchased and record it in your bookkeeping system like you normally would “Cost of Goods,” “Fabrics,” “Office Supplies,” etc..
2. Instead of recording it as coming from your bank/credit account, say that it comes from your “Owner’s Pay and Personal Expense” account or your “Loan from Owner” account.
3. At the end of the month, quarter, or at the end of the year, write yourself (you the person) a check for the amount that you GAVE to the business and reimburse yourself. 
4. When you see that the check cleared from your business bank account in your accounting system, all you have to do is make this category the same as in #3, whether it be “Loan from Owner” or “Owner’s Pay and Personal Expense.” 
5. At the end of this, you will “net” out the “Loan from Owner” or “Owner’s Pay and Personal Expense” account so that it is zero 

Ok, so that wraps up what to do in the three most common “money mixing” scenarios, just a word of advice; 

1.) Make sure you have a business bank account, this will eliminate a WHOLE LOT of headache come tax time. 

2.) Put a sticker or marking on your business credit card so while out and about you know to actually USE the business card. 

3.) If you mix them up, just remember to keep EXTRA special attention to these and record them as “Loans from Owner,” whether you GIVE OR TAKE from the business…