Navigating Client Co-Mingling Issues: A QuickBooks Dilemma

Recently, a colleague reached out to me about a situation involving their gardening and landscaping business that raised some pressing concerns regarding Bookkeeping practices. After losing their long-time assistant and bookkeeper, my friend took on the responsibility of transitioning their financial record-keeping to QuickBooks. However, what they uncovered was a tangled financial web that needed urgent attention.

The Challenge of Co-Mingling Funds

The owner of the company, Liz, has been paying numerous personal expenses from the business account. This includes payments for her mortgage, utility bills, gym memberships, and even contributions to her retirement account. These payments have all been recorded manually in a ledger for the better part of the last decade, which complicates the handover to digital Bookkeeping.

To give some perspective, consider a typical month’s record of transactions:

• 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 business-related expenses such as pest control and fertilizer purchases are legitimate and should be logged accordingly, Liz’s personal expenses raise significant concerns about co-mingling funds. This type of financial blending violates proper Accounting principles and can lead to complications down the road, especially during tax season.

Seeking Clarity

Upon digging deeper, I discovered from the retiring admin that Liz’s SIMPLE IRA contributions were not employer-sponsored; rather, they were her own personal contributions, also made from the business account. This situation only amplifies the need for better financial separation.

When I approached Liz and her former assistant about these discrepancies, they seemed confused and somewhat dismissive of my concerns. Their previous practice of using handwritten ledgers meant that financial details were overlooked when passed to their accountant, who would ultimately sort things out.

What’s the Next Step?

Faced with this co-mingling issue, I found myself grappling with how to account for these personal expenses while transitioning everything into QuickBooks. Should I categorize these as “Owner Draws” in the software, or is there a more effective method to address this situation?

My goal is to assist Liz in maintaining accurate