The entity principle in accounting is one of the top concepts business owners must understand. Many starting and small businesses make the mistake of mixing personal and business finances. This mainly happens, so business owners do not have to open another bank account, and other reasons include the simplicity of the recording system. However, aside from this practice being a contravention to the entity principle of accounting, it also causes various issues for the business.

Limited Audit Trail

Having a good audit trail is important in business to verify and validate financial transactions. But mixing business and personal activities in the company books impairs the audit trail, making it harder to monitor income and expenses. Therefore, if there are discrepancies in the finances, it would be harder to determine where the issue lies. More importantly, internal fraud is much harder to detect with the limitations caused to the audit trail.

Complicates Taxes

Since mixing finances affects income and expenses, it also eventually influences tax computations. Not only does it complicate the taxation process, but personal activities also add to the company’s tax costs. There are also certain deductions the business might miss, which translates into letting go of tax savings.

No Clear Picture of Company’s Financial Health

Proper accounting is critical in determining how well or bad the enterprise is doing. But even with small business accounting software, improperly recording personal financial activities lead to inaccurate records and misleading reports. Making business decisions based on these incorrect reports can lead to problems later on.

Practice Proper Record-keeping With KIPPIN

Along the listed above, there are many more issues that the improper practice of recording owner’s finances with the business may cause. Exercising proper accounting and using the best accounting software for small business will solve these problems without much effort.

KIPPIN is a small business accounting software that manages the company’s financial reports in simple and convenient ways. It allows entrepreneurs to correctly record business transactions even with minimal knowledge in accounting. As a result, the books and financial statements are accurate and reflect the actual health of the company.