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

When stepping into the role of a bookkeeper for a business that has relied on manual entry for years, you can find yourself facing unusual challenges. Recently, a friend sought my assistance after her long-time bookkeeper retired, and she needed someone to help transition their financial records to QuickBooks. Despite my eagerness to learn this Accounting Software, I soon discovered that the situation was more complex than I anticipated.

The client, whom I’ll refer to as Liz, has been inadvertently mixing personal and business expenses. As I dove into the records, it became clear that key personal expenditures were being paid through the business account. Items such as mortgage payments, utility bills, contributions to her IRA, gym memberships, and even cable expenses were all intertwined with legitimate business transactions.

For instance, in this gardening and landscaping business, a sample month’s transactions looked like this:

• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Home & Auto Insurance: $3,000
• Ed’s Nursery: $2,000
• Mortgage Payment to Chase Bank: $3,500
• Comcast: $200
• AT&T: $200
• SIMPLE IRA Contribution: $4,000

Upon examining these entries in QuickBooks, it became evident that while the expenses related to pest control and nursery supplies were legitimate business costs, the payments for home-related bills posed a significant issue of co-mingling funds. For example, I learned that Liz’s contribution to her retirement account was categorized under the business account, even though it was a personal contribution.

This raised a crucial question: How do I handle these personal expenses while maintaining accurate books in QuickBooks? Short of instructing the client to separate her expenses entirely, which might be a challenging conversation, I pondered whether categorizing these personal expenditures as “Owner Draws” would be the best approach.

As I sought clarification from Liz and the retiring bookkeeper, I noticed their confusion and irritation with my inquiries. They were accustomed to simply recording everything in a handwritten ledger and then passing it to their accountant for consolidation. However, as a new bookkeeper, it’s crucial that I maintain clarity and transparency in the financial records to avoid potential pitfalls.

So, is this a valid concern, or am I overreacting? The implications of co-mingling personal and business finances are significant,