Navigating Client Co-Mingling Issues in QuickBooks: A Primer for New Bookkeepers
Transitioning to a digital Accounting system such as QuickBooks can be challenging, especially for those who have relied on manual Bookkeeping for years. Recently, I encountered a complex situation while assisting a friend’s gardening and landscaping business with their Accounting needs.
The Challenge
After the retirement of the previous assistant, my friend Liz sought help to convert their handwritten records into QuickBooks. Eager to learn and tackle the task, I soon found myself in deep waters. The crux of the issue involved significant personal expenses being paid from the business account, which raised several red flags.
The Expense Breakdown
To give you a clearer picture, here’s a snapshot of the company’s recent expenses that I came across:
- 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
While the expenses related to pest control, fertilizing, and plant nursery seem reasonable for a landscaping company, others, like the mortgage, utilities, and personal IRA contributions, hinted at a significant co-mingling of funds.
Understanding Co-Mingling Issues
Co-mingling occurs when personal expenses are paid from business accounts, which can lead to Accounting complications and potential tax issues. Upon examining the records, I learned that the SIMPLE IRA noted was indeed a personal contribution on Liz’s part, not a business-related expense.
Finding a Path Forward
This brings me to a challenging question: How should I account for these personal expenses within QuickBooks? Should I request that Liz separate her personal expenditures from her business transactions, or is there a simpler way to approach this?
For now, it seems logical to categorize the personal expenses as “Owner Draws” in QuickBooks. This method allows for easier tracking without creating a confrontation, especially given the reluctance from Liz and her retiring assistant regarding their traditional ledger approach.
Seeking Advice
I have reached out to both Liz and the former assistant for clarification, but they appear somewhat puzzled and annoyed by my inquiries. After a decade of hand-written records, they are understandably hesitant to adjust their routine.
As I navigate this new terrain, I am left
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