Title: Navigating Client Co-Mingling Issues in QuickBooks: An Accountant’s Guide
As a professional accountant, I recently took on a challenging project that brought to light some common Accounting pitfalls for small businesses. A friend approached me for assistance after her bookkeeper retired, seeking help in transitioning to QuickBooks. Having a keen interest in Accounting Software, I enthusiastically accepted the opportunity. However, I soon discovered I was faced with a significant challenge involving co-mingling of funds.
The client’s business, a gardening and landscaping operation, had been maintaining its financial records manually for over a decade. This traditional approach had served them well until now, leading to some confusion when it came to reconciling their books. As I delved into their financial records, it became evident that personal expenses were being paid from the business account. This included significant items such as mortgage repayments, utility bills, gym memberships, and even IRA contributions.
To illustrate, here’s a breakdown of a typical month’s transactions from their records:
- 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 the gardening service costs, like pest control and fertilizers, are clearly legitimate business expenses, the payments for the mortgage and other personal bills raise questions of co-mingling. This duality not only complicates Accounting but may also lead to potential tax issues down the line.
Initially, I attempted to clarify these entries with both the retiring assistant and the business owner, Liz. Unfortunately, my inquiries were met with confusion and some annoyance, as they were accustomed to simply transferring their handwritten records to their accountant without further scrutiny. Their methodical approach had worked for them but did not align with standard accounting practices.
So, what is the best course of action in this situation?
Addressing Co-Mingling Issues in QuickBooks
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Identify Personal vs. Business Expenses: First and foremost, it’s imperative to distinguish personal expenses from business ones. Any costs that are not directly related to business operations should be flagged.
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Owner Draws: For personal expenses being paid from a business account, it’s appropriate
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