Starting with a new bookkeeping client can be an exciting opportunity, but what happens when their books are a mixed mess of personal and business transactions? It becomes crucial to implement effective strategies to untangle the comingling mess and establish proper bookkeeping practices. When that happens to you, here are my tips for taking on a messy comingling cleanup in QuickBooks Online.
What is Comingling?
What is comingling? It is using personal funds to pay for business expenses or using business funds to cover personal expenses. It is tracking personal bank and credit card accounts within QuickBooks Online. This can include connecting a personal credit card with a balance or a carry forward balance. Another aspect of comingling is pocketing cash and attempting to manage both business and personal income and expenses in QuickBooks Online, including budgeting.
Best Practices
There should be no personal expenses included in the business books. Personal accounts should not be connected to the QBO bank feeds. For sole proprietors in the US, record any personal expenses to Owner’s Draw or an equivalent account. For S-Corp and Partnership businesses in the US, owners may be reimbursed for business expenses that were paid with personal funds. Make sure to implement processes and accountability with your client to track cash expenditures.
Tips for Working with Comingling Clients
When working with comingling clients, you’ll need to identify and assess the bank and credit card accounts. Make a list of all of the bank and credit card accounts being used by your client. Ask your client whether the accounts are business or personal accounts. In some cases, clients use a personal credit card only for business. That’s okay as long as they’re using it only for business. Look at the bank and credit card statements to verify the name on the accounts. Sometimes clients think that they’re using an account for business but it’s really a personal account. The client is responsible for identifying business and personal transactions. That’s up to the client. It is not up to you to determine whether expenses are business or personal. Avoid connecting any personal accounts to the QBO bank feeds. Remove personal accounts from the bank feeds.
Personal Expenses Paid with Business Funds
What if your client has personal expenses paid for with business funds? Record any personal expenses to Owner’s Draw or an equivalent account. Your client may have also paid for business expenses with personal funds. In that case, ask the client to provide a spreadsheet or a listing of all business expenses that were paid for with personal funds. Then you’ll need to record a journal entry by month. You’ll need to debit all of the various expense accounts and credit owner’s contribution or an equivalent account. What if your client connected their personal bank and credit card accounts to the QBO bank feeds? It’s best to undo transactions in the bank feed and disconnect the bank feed on any personal accounts.
Lessons I’ve Learned
Avoid working with clients who refuse to stop comingling. You’re incurring potential liability by working with clients who are comingling. Especially if you’re the one who’s determining whether transactions are business or personal. It really makes for messy bookkeeping that is a lot more time consuming. The client is not complying with your way of doing business and it’s hard to implement processes and accountability. Ultimately, it’s very hard to establish boundaries with clients who are comingling. Your goal should be to not work with clients who comingle, but many of them are comingling just because they don’t know any better. That makes you the perfect person to help them to stop comingling.
Closing and Resources
As you’ve seen in my tips for taking on a messy comingling cleanup in QuickBooks Online, it requires meticulous attention to detail and clear communication with clients. By implementing these best practices, bookkeepers can help their clients achieve cleaner and more accurate financial records. Even better, you ultimately contribute to their long-term success.
If you’re looking for more tips with your virtual bookkeeping business, check out my free Virtual Bookkeeper’s Toolbox or visit the 5MB Academy to see all my free and paid resources. I’ve also got plenty of free video resources for virtual bookkeepers on my 5 Minute Bookkeeping YouTube channel. You can also connect with me and get plenty of bookkeeping advice, stories, and resources in my online community. Join the 5 Minute Bookkeeping Community on Facebook to connect with fellow bookkeepers, where you can ask questions and share your journey. I’ll see you there!