Client Co-Mingling Issue – how to account for these “expenses” in QuickBooks?

Title: Navigating Client Co-Mingling Issues in QuickBooks: A Guide for New Bookkeepers

When a friend of mine reached out for assistance with transitioning their gardening and landscaping business to QuickBooks, I jumped at the opportunity. After her long-time assistant/bookkeeper retired, it was clear that some help was needed. Little did I know just how complex the situation would be.

Having primarily relied on handwritten ledgers for over a decade, the business owner, Liz, had accumulated an assortment of transactions in their current Accounting approach. However, I quickly discovered that many personal expenses were being charged to the business account. These expenses ranged from essential bills like mortgages and utilities to personal benefits such as gym memberships and cable services.

To give you a clearer picture, here’s a snapshot of what a typical month looks like for this business:

| Expense Description | 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 |

As I began the process of inputting these records into QuickBooks, it became clear that legitimate business expenses such as those for pest control and fertilization were intermingled with personal costs, creating a co-mingling dilemma.

In my discussions with the retiring bookkeeper, I learned that the SIMPLE IRA payment was Liz’s personal contribution, yet it was withdrawn from the business funds. This raises significant questions about proper Accounting practices and compliance.

Faced with this challenge, I pondered the best way to handle these inconsistencies. Should I categorize personal expenses as “Owner Draws,” or is there a better course of action? This dilemma left me uncertain, especially when my inquiries about these transactions were met with confusion and annoyance from both Liz and the former assistant. They were accustomed to their informal ledger system and seemed unaware of the repercussions of such practices in a more formal Accounting environment.

As I reflect on this situation, I ask myself: is my concern valid? Am I overreacting, or is this a critical issue that needs addressing? If you are in a similar situation, here’s what I recommend:

1. **Open Communication