Managing Client Co-mingling Issues in QuickBooks: A Practical Guide
Navigating the Transition to QuickBooks
Recently, I was approached by a friend who needed assistance with transitioning to QuickBooks after her long-time assistant/bookkeeper retired. Having spent over a decade managing financial records manually, she sought a fresh perspective on digital Accounting. Eager to enhance my skills, I gladly accepted the opportunity to help. However, I quickly realized that I had bitten off more than I could chew.
In diving into the financial records, I uncovered a significant issue: the client, whom we’ll refer to as Liz, was using her business account to pay a variety of personal expenses. This wasn’t just a few minor charges; we were talking about major bills like her mortgage, utilities, retirement contributions, gym memberships, and more.
A Closer Look at the Financial Records
To provide context, let’s consider a typical month’s transactions for Liz’s gardening and landscaping business. The ledger revealed:
- 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 to import these records into QuickBooks, it became evident that various personal expenses were being paid directly from the business account. While charges for pest control, fertilizer, and nursery supplies certainly seemed like ordinary business expenditures, payments for mortgage, internet, phone services, and even personal IRA contributions raised red flags about financial co-mingling.
Understanding the Implications of Co-mingling
The situation became more complex when I learned that the SIMPLE IRA contribution was not an employer obligation, but rather a personal payment from Liz. This raises questions about financial integrity and compliance, especially given that all transactions were, until now, recorded in a hand-written ledger that would later be passed on to their accountant for review.
Finding a Way Forward
As I pondered the best approach to rectify this financial jumble, I faced a dilemma: how do I address this issue with Liz and the former administrator without causing frustration or confusion? Tagging all personal expenses as “Owner Draw” in QuickBooks might seem like a straightforward solution, but would
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