Accounting & Bookkeeping & Small Business Forum

[Jenniferjeanne1984]

Recently a family member asked me to take a look at their books since the person who use to take care of them has left.

It's a big mess.

It's in Simply Accounting.
She has two creditcards setup as assets.

Her entries were similar to this
Debit Visa xx dollars
Credit Cash xx dollars

So now 5 years later the Visa account has a $6000 debit. For a small business this is material.

I have no idea what to do. He uses the credit card for business and personal, so being conservative I think I have to assume those visa bills were personal.

Should I just treat it all as a owners withdrawal?
What would you do?

Help?

[stasia2003]

Jenniferjeanne1984 wrote: Recently a family member asked me to take a look at their books since the person who use to take care of them has left.

It's a big mess.

It's in Simply Accounting.
She has two creditcards setup as assets.

Her entries were similar to this
Debit Visa xx dollars
Credit Cash xx dollars

So now 5 years later the Visa account has a $6000 debit. For a small business this is material.

I have no idea what to do. He uses the credit card for business and personal, so being conservative I think I have to assume those visa bills were personal.

Should I just treat it all as a owners withdrawal?
What would you do?

Help?

First off, see if the business owner can dig up the old credit card statements. If not, call the credit card companies. It may take a while to get the old ones but that's a good way to deciper them. Basically you will just have to move the credit card accounts over to the liabilities section. And then, find where any payments were made to reduce the balance.

[RobJ]

Jenniferjeanne1984 wrote: It's in Simply Accounting.
She has two creditcards setup as assets.

Her entries were similar to this
Debit Visa xx dollars
Credit Cash xx dollars

So now 5 years later the Visa account has a $6000 debit. For a small business this is material.
The entry is correct to make a credit card payment. It appears that the credit card charges were not "expensed".

For example, if you bought some pens for $10 and paid by credit card, there would be four entries (assuming that's the only thing you purchased with the credit card during the month).

The first two are to "expense" the charge when the purchase is made:

$10 DR Office Expense
$10 CR Credit Card

The last two are to pay the credit card bill:

$10 DR Credit Card
$10 CR Checking

It looks like she never actually "expensed" the charges so you won't know whether the charges were for business or personal use.

Quote: I have no idea what to do. He uses the credit card for business and personal, so being conservative I think I have to assume those visa bills were personal.

Should I just treat it all as a owners withdrawal?
What would you do?
As for the $6,000 balance, you will have to talk to the family member who owns the business to decide what to do with those charges. If the family member can no longer recall whether the charges were for business or personal, it would be risky to categorize them as business expenses and take a deduction for them.

Have tax returns been filed for all prior years (2007 and earlier)?

What type of business entity is the business (sole proprietor, S-CORP, LLC, C-CORP, etc.)?

[stasia2003]

RobJ wrote: Jenniferjeanne1984 wrote: It's in Simply Accounting.
She has two creditcards setup as assets.

Her entries were similar to this
Debit Visa xx dollars
Credit Cash xx dollars

So now 5 years later the Visa account has a $6000 debit. For a small business this is material.
The entry is correct to make a credit card payment. It appears that the credit card charges were not "expensed".

For example, if you bought some pens for $10 and paid by credit card, there would be four entries (assuming that's the only thing you purchased with the credit card during the month).

The first two are to "expense" the charge when the purchase is made:

$10 DR Office Expense
$10 CR Credit Card

The last two are to pay the credit card bill:

$10 DR Credit Card
$10 CR Checking

It looks like she never actually "expensed" the charges so you won't know whether the charges were for business or personal use.

Quote: I have no idea what to do. He uses the credit card for business and personal, so being conservative I think I have to assume those visa bills were personal.

Should I just treat it all as a owners withdrawal?
What would you do?
As for the $6,000 balance, you will have to talk to the family member who owns the business to decide what to do with those charges. If the family member can no longer recall whether the charges were for business or personal, it would be risky to categorize them as business expenses and take a deduction for them.

Have tax returns been filed for all prior years (2007 and earlier)?

What type of business entity is the business (sole proprietor, S-CORP, LLC, C-CORP, etc.)?

Actually, the journal entry above is wrong if the credit cards are listed as an ASSET, like the OP said. But, if it was listed as a liability, then that entry would be correct to show payment of the bill. I just wanted to specify that. :D

[RobJ]

stasia2003 wrote: Actually, the journal entry above is wrong if the credit cards are listed as an ASSET, like the OP said. But, if it was listed as a liability, then that entry would be correct to show payment of the bill. I just wanted to specify that. :D
I agree. I'm not familiar with Simply Accounting, but I know that you can easily change an asset to a liability in QuickBooks. Hopefully the same is true of Simply Accounting.

[dp1903]

I concur with RobJ. The person making the original entries didn't understand the result of her incorrect recording of transactions. In other words, she didn't know what she was doing.

There should be credit card statements filed somewhere in case of an IRS audit. If they are found the owner may be able to identify some transactions which were legitimate business. Otherwise I would classify all unidentified transactions as personal as has already been stated.