Separate business and personal expenses
It’s important to keep business and personal expenses separate. One way to do this is to have a separate bank account for your business. If you do most of your transactions through a credit card, it’s a good idea to have a business credit card. This means that your statements are, in effect, a checklist of your expenses.
If you use one bank account for both business and private purposes, you must clearly identify any personal payments or expenses in your cash book so they can be treated as non-business expenses. This includes any cash taken from money your business receives. These payments or withdrawals are often referred to as ‘drawings’.
Sometimes you may have expenses that relate to both business and private use – for example, where you have a home-based business and use one phone line for both business and personal purposes. In this case, you have to clearly work out how much of the expense is private and how much is related to your business because you can’t claim a deduction for the amount related to private use.
It is important to separate business expenses from personal expenses. If you clearly differentiate between the two, you can more easily work out how much of your total costs are private and how much are related to your business.