Navigating Client Co-Mingling Issues in QuickBooks: Tips for Accountants

When stepping into the world of QuickBooks, especially for a client transitioning from manual Bookkeeping, the process can be daunting. I recently took on a project to assist a friend whose bookkeeper had retired after a decade of managing finances by hand. Although I was eager to learn QuickBooks, I quickly discovered the complexities of the situation at hand.

The client, Liz, operates a gardening and landscaping business, but it became apparent that her business and personal finances had been dangerously intertwined. A review of the business’s financial records revealed numerous personal expenditures being paid out of the business account, raising several red flags.

For instance, common monthly transactions included legitimate business expenses such as payments to reputable pest control and fertilizing services. However, intermingled were substantial personal costs like mortgage payments, utility bills, gym memberships, and even IRA contributions. Let’s examine a snapshot of their typical month:

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

It’s concerning to see personal obligations like the mortgage and regular bills mixed into the business account transactions. When I inquired with the outgoing administrator about whether the IRA contributions were for business purposes, I learned that they were merely personal contributions made from business funds.

This situation presents a significant challenge. How do I correctly account for these mixed transactions in QuickBooks without making matters worse? While ideally, separating personal and business expenses would be the best course of action, the reality is that Liz and her team seem uninterested or ill-prepared to address this complicated situation.

Should I simply categorize the personal expenses as “Owner Draw” in QuickBooks, or is there a better solution? These questions had been met with confusion from Liz and the retiring assistant, who have grown accustomed to their previous method of keeping a handwritten ledger and leaving the intricacies for their accountant to decipher later.

The underlying question remains: Is this a serious Accounting issue? And how should I approach it in terms of Accounting practices within QuickBooks?

A Path Forward

In addressing