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Tracking Personal Spending with QuickBooks Equity Accounts

If your farm business is a sole proprietorship, you may face a dilemma about how to keep track of family and personal income and expenses, and keep them separate from those of the farm business within QuickBooks.

One option is keep a separate personal checking account, use it for all personal spending, and replenish it with funds from farm checking account as needed. With this system you avoid the need to enter each personal transaction into QuickBooks (unless you want to). The disadvantage is that you may always seem to have the "wrong" checkbook along with you when you want to make a purchase.

Another alternative is to pay personal expenses directly from the farm checking account and keep track of them within QuickBooks. Anyone using Quicken or another single-entry accounting system can do this easily...but it's also easy if you're using a double-entry system like QuickBooks.

The trick is to take advantage of the basic nature of double-entry accounting: that besides incomes and expenses, each transaction entry may also record a change in asset, liability, or equity account balances. How? Just create a set of personal income and expense accounts within the equity section of your QuickBooks Chart of Accounts, then use them as if they were income or expense accounts. This technique merely expands on the basic idea of using capital addition/capital drawing accounts, which are commonly used in double-entry systems.

Here's are just a few examples of equity accounts you might use:

Add/Off-farm Wages
Add/Investment income
Draw/Auto expenses
Draw/Household Utilities

When you record a check written on the farm checking account for household LP gas, use Draw/Household Utilities as the "expense" account for the transaction. This records a draw from farm business capital for personal items--it reduces the equity total reflected in your accounts.

When you deposit a spouse's off-farm wages, use Add/Off-farm Wages as the "income" account for the deposit entry. Because you're depositing non-farm wages in the farm checking account, the transaction needs to record an addition to farm business capital (equity), and that's exactly what it does!

To get totals for personal spending and income, there are a couple different QuickBooks reports you might use. A good choice would be a Transaction Detail report, filtered to cover the time period you want to know about.

This technique lets you keep any amount of detail you want. For instance, you can use any number of subaccount levels and also Classes to categorize personal spending and income in greater detail.

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