Navigating Client Co-Mingling Issues in QuickBooks: A Guide for Business Owners
Recently, I had the opportunity to assist a friend whose bookkeeper had just retired. In her search for a solution to transition her business’s financial management to QuickBooks, she reached out for my support. Though I had not worked extensively with QuickBooks before, I accepted the challenge, excited to learn the ropes. However, I soon discovered that I was facing a significant issue that required prompt attention.
The business in question is a gardening and landscaping service, and it has been operating with handwritten ledgers for the past decade. Upon reviewing their accounts, I realized that the owner, Liz, was using the business account to cover numerous personal expenses—including her mortgage, utility bills, IRA contributions, gym memberships, cable services, and more. This mix of personal and business finances immediately raised red flags regarding proper Accounting practices.
Here’s a snapshot of what their monthly expenses looked like:
- 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 charges for services like pest control and fertilization are clearly business-related, the payments for the mortgage and personal bills reflect a serious co-mingling of funds. To add to the complexity, I confirmed with the retiring administrator that Liz’s IRA contribution was a personal expense, not an employer contribution.
Given the circumstances, I found myself wondering how to manage the Accounting for such transactions in QuickBooks. Would it be proper for me to reclassify these personal expenditures as “Owner Draws”? This approach could help segregate personal expenses from business costs, but I was uncertain whether it would adequately address the problem.
When I questioned Liz and her former assistant about these expenses, they seemed bewildered and somewhat annoyed, likely because they were accustomed to recording everything in their handwritten ledger and relying on their accountant to sort out the details.
So, what steps should be taken to resolve this issue in QuickBooks?
- Establish Clear Boundaries: Encourage Liz to separate personal and business expenses as a foundational practice. This change
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