This is part of a continuing series on how I, as a sole proprietor, manage my accounting. It is intended as a guide, and should not replace the advice you get from your accountant.

In this post I’ll be talking about Bank Accounts

I maintain three bank accounts, business checking, personal checking, and savings. This makes book keeping a lot easier, because business and personal are separated into different ledgers. It creates a clear, and well documented, picture of how money comes in and goes out. This is very important if you happen to get audited.

All cash receipts, the money my business earns, is deposited into the business checking account. From the business account, I transfer money to the other accounts, and pay any business expenses.

To the personal account I transfer the equivalent of a monthly paycheck. This money is used exclusively for personal expenses. Any money I receive that is not taxable, such as a refund on after tax money, gets deposited directly into the personal account.

Into savings I transfer a predetermined percentage of each deposit made to the business checking account. This percentage is based on my projected tax bracket. Your accountant can assist you in determining what that percentage should be. This is a high interest baring account that I transfer money into. Then I transfer out of it, to the personal checking account, for paying quarterly and annual taxes. In other words I keep the money in a high interest baring account until I need it for taxes. At the end of the year there may be some money left over. This is after tax money, so it can be use just like a tax return. The only difference is I collected the interest on it, not Uncle Sam.

In my next post I’ll discuss bank deposits.