Navigating Co-Mingling Issues in QuickBooks: A Guide for New Bookkeepers
As a new bookkeeper, diving into the world of QuickBooks can be both exciting and daunting. Recently, a friend reached out to me after their bookkeeper retired, seeking assistance in transitioning from a manual record-keeping system to QuickBooks. After some initial hesitation, I accepted the challenge, only to quickly discover the complexity surrounding the client’s financial records.
The client, whom we’ll call Liz, runs a gardening and landscaping business but has been mixing personal and business expenses in her accounts for years. With a decade’s worth of hand-written ledgers, understanding the nuances of her finances became an intricate puzzle.
A Closer Look at the Financial Landscape
In reviewing her accounts, I encountered a concerning trend: significant personal expenses—such as mortgage payments, utility bills, and gym memberships—were paid from the business account. For example, a typical month’s expenditures included:
- 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: $200
- AT&T: $200
- SIMPLE IRA Contribution: $4,000
While the charges for pest control, fertilizing, and nursery supplies clearly qualify as business expenses, the inclusion of mortgage payments, cable, and phone bills indicated a significant mixing of funds—often referred to as co-mingling.
Addressing Co-Mingling in QuickBooks
One of the more troubling elements of this situation is the owner’s contribution to her SIMPLE IRA, which, according to the retiring administrator, is a personal contribution being improperly drawn from business funds.
So, what should I do in QuickBooks about these expenses? Should I simply categorize the personal expenditures as “Owner Draws,” or is there a more nuanced approach?
Finding Solutions
Navigating such a complicated financial landscape requires careful handling. Here are some steps I recommend:
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Open a Dialogue: It’s crucial to communicate clearly with Liz. Explain the importance of separating business and personal expenses for accurate financial reporting and legal compliance. This may help clear up any confusion or annoyance she feels regarding the inquiries.
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Separate Accounts: Encourage Liz to open personal accounts to keep her business finances distinct. While this may seem simple, it lays
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