Navigating Client Co-Mingling Issues in QuickBooks: A Guide for New Bookkeepers
Transitioning from traditional ledger keeping to digital Accounting Software can be daunting, especially when you discover underlying issues that complicate the process. A recent experience with a client has highlighted the common challenge of managing personal and business expenses within the same financial account.
A friend of mine recently needed assistance after their long-time bookkeeper retired. With a decade of handwritten records to update, I decided to step in and learn the ropes of QuickBooks. However, it quickly became apparent that I might have bitten off more than I could chew.
The client I’m assisting, Liz, is utilizing her business account for a range of significant personal expenses, including but not limited to her mortgage, utilities, IRA contributions, gym memberships, and cable bills. This scenario exemplifies a major co-mingling concern that can complicate financial management.
For context, Liz operates a gardening and landscaping business. Here’s a snapshot of a typical month’s transactions:
- 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
Upon entering these transactions into QuickBooks, it became evident that personal expenses were being paid from the business account alongside legitimate business expenditures like pest control and fertilizers. This raises significant concerns regarding accurate financial reporting.
I inquired with the retiring admin about the SIMPLE IRA payment and learned it was Liz’s personal contribution, which was also being debited from the business funds. This compounded the issue, blurring the lines between personal and business financials.
So, what should be done in this situation? While I pondered the best course of action, the prospect of asking Liz to separate her personal and business expenses seemed overwhelming. I questioned whether I should categorize these personal expenses as an “Owner Draw” in QuickBooks, effectively separating them from the business’s revenue and expenses.
In discussions with both the owner and the retiring admin, I sensed confusion and irritation regarding my inquiries about these transactions. They had relied on their handwritten records for years, simply handing them off to their accountant without considering the complexities now presented
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