Navigating Client Co-Mingling in QuickBooks: A Guide for Small Business Owners
In the world of Accounting, co-mingling personal and business expenses can lead to a series of complications. Recently, I embarked on a journey to assist a friend, Liz, in transitioning her gardening and landscaping business to QuickBooks following her bookkeeper’s retirement. Little did I know how challenging this undertaking would become.
Liz and her former bookkeeper had relied on a manual ledger for about a decade. As I began pulling their financial records into QuickBooks, I quickly encountered an alarming issue: a significant amount of personal expenses were being processed through the business account. This included items such as mortgage payments, utility bills, IRA contributions, gym memberships, and more.
To illustrate, let’s take a look at a snapshot of a typical month’s expenditures:
| Vendor/Expense | Amount |
|——————————-|———|
| Bob’s Pest Control | $1,000 |
| Jill’s Fertilizing | $600 |
| Insurance Company (Home & Auto)| $3,000 |
| Ed’s Nursery | $2,000 |
| Chase Bank (Mortgage) | $3,500 |
| Comcast | $200 |
| AT&T | $200 |
| SIMPLE IRA | $4,000 |
While it’s clear that the payments to pest control, fertilizer suppliers, and nurseries are legitimate business expenses, the inclusion of the mortgage payment and utility costs raises a red flag. Even more concerning is the SIMPLE IRA contribution, which I discovered to be a personal contribution from Liz, rather than an employer-sponsored contribution.
My overarching question is, what should be done about this? How can I effectively manage these co-mingled expenses in QuickBooks without causing frustration for Liz, who seems accustomed to a more straightforward way of record-keeping? Asking questions about these transactions has only led to confusion and annoyance.
In terms of Accounting solutions, should I simply categorize these personal expenditures as “Owner Draws” in QuickBooks? Or is there a more comprehensive way to address this situation without disturbing Liz’s established mode of operation?
It appears that what I encountered is a common issue among small business owners who do not have distinct separations between personal and business finances. Although this may seem like a small oversight, it has significant implications for both tax and Accounting accuracy.
To help Liz rectify this situation, a few clear
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