Navigating Client Co-Mingling Issues in QuickBooks: A Guide to Proper Expense Management
Recently, I took on a fascinating project involving a client who transitioned from traditional Bookkeeping methods to QuickBooks. A friend of mine needed assistance after her long-time bookkeeper retired, and I saw this as a perfect opportunity to expand my own knowledge of the software. However, I quickly discovered that this task was more challenging than I had anticipated.
The client, whom I’ll refer to as Liz, has been handling financial transactions for her gardening and landscaping business by hand for over a decade. While this approach served her well for years, the need to modernize became evident. Upon accessing her records, it was clear that Liz had been using her business account to pay for a range of personal expenses, which raised several red flags.
To illustrate the situation, here’s a typical expense report from her company:
- 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 most expenses from pest control to fertilizer seem legitimate for a landscaping business, I found multiple personal transactions—such as the mortgage, utility bills, and even the SIMPLE IRA contribution—being paid from the same business account.
My initial inquiry regarding the SIMPLE IRA revealed that it was not an employer contribution but rather a personal investment made by Liz using business funds—a clear conflict of interest. Understandably, this situation poses a significant co-mingling issue that could create problems down the line, especially when it comes to accurate Accounting and tax filings.
Faced with this dilemma, I knew I needed to address these personal expenses within QuickBooks effectively. However, my attempts to bring this to Liz’s attention seemed to frustrate her and the retiring bookkeeper, who were accustomed to a more laissez-faire approach to Bookkeeping. They had relied on their hand-written ledger and a trust in their accountant to untangle the financial complexities.
So, where do I go from here? Should I simply classify all the personal expenses as an “Owner Draw” in QuickBooks and move on? This method could work, but it doesn’t
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