Navigating Client Co-Mingling Issues in QuickBooks: A Guide for New Bookkeepers
Recently, I took on an intriguing challenge when my friend asked for assistance with QuickBooks after their bookkeeper retired. For the past decade, this client, Liz, had been handling their financial records manually, relying on a traditional ledger system. While this experience had its merits, transitioning to a digital Accounting system presented unexpected hurdles.
As I delved into Liz’s financial transactions, it quickly became apparent that her business account was being used for a mix of personal and business expenses. The charges ranged from essential business services like pest control and fertilizing to significant personal expenditures such as mortgage payments, utility bills, and even gym memberships. Here’s a snapshot of the transactions for a typical month:
- 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 Contribution: $4,000
When I imported these records into QuickBooks, it became clear that numerous transactions related to personal expenses were muddling the business account, creating a significant co-mingling issue. While the payment for pest control and nursery supplies are undoubtedly legitimate business expenses, the mortgage, insurance, and utility costs are a different story altogether.
Upon discussing the SIMPLE IRA contribution, I learned that it wasn’t an employer-sponsored plan, but rather Liz’s personal investment, also drawn from the business funds. This revelation added another layer of complexity to the financial management challenge.
So, what steps should I take to address this situation without causing friction with the client? I contemplated whether to suggest that Liz categorize personal expenses as “Owner Draw” in QuickBooks. However, my attempts to discuss these concerns with Liz and her former assistant seemed to be met with confusion or annoyance; they were accustomed to their manual approach and directly handing records to their accountant, leaving the detailed Accounting intricacies to others.
This leads me to ponder: Am I overreacting? Or is this a legitimate Accounting predicament that needs resolution? If others find themselves in similar shoes, how should one go about organizing finances in QuickBooks to separate business and personal expenses effectively?
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