Navigating Client Co-Mingling Issues in QuickBooks: A Guide for New Bookkeepers
Recently, I embarked on a new journey when a friend reached out for assistance with transitioning their manual Bookkeeping practices to QuickBooks. The business, owned by Liz, had been relying on handwritten records for over a decade, and with the retirement of her assistant/bookkeeper, it was time for a change. I was excited to dive into QuickBooks, but soon discovered that I was faced with some significant challenges.
As I began reviewing the company’s financial transactions, it became evident that there were serious concerns regarding co-mingling of personal and business expenses. The gardening and landscaping company had several recurring charges, and not all of them were related to business operations. For instance, here are some of the transactions I encountered:
- Bob’s Pest Control: $1,000
- Jill’s Fertilizing: $600
- Home and Auto Insurance: $3,000
- Ed’s Nursery: $2,000
- Mortgage Payment to Chase Bank: $3,500
- Comcast (Cable Bill): $200
- AT&T (Phone Bill): $200
- SIMPLE IRA Contribution: $4,000
While the expenses for pest control, fertilizing, and nursery services are legitimate business costs, items such as the mortgage payment, utility bills, and personal IRA contributions signal a concerning overlap between personal finances and business funds.
The situation raises a fundamental question for any new bookkeeper: how do you effectively manage personal expenses that are being processed through a business account? The retiring admin indicated that the SIMPLE IRA contribution was a personal one by Liz, not an employer contribution. This only complicates matters that need to be addressed to ensure accurate Accounting practices moving forward.
In my quest for clarity, I’ve encountered some resistance from Liz and the outgoing admin. They seem perplexed by my inquiries, as they are accustomed to their traditional, handwritten system and have relied on their accountant to sort out these financial discrepancies. This lack of understanding highlights the importance of establishing sound Accounting practices before it becomes an issue during tax season or, worse, a potential Audit.
So, where do we go from here? Is it appropriate to categorize the personal expenses as “Owner Draws” in QuickBooks? While it may seem like a straightforward solution, accurately reflecting these transactions in the Accounting Software is vital to maintaining the integrity of the business’s financial records
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