Navigating Client Co-Mingling Issues in QuickBooks

Recently, I took on a new role assisting a friend who needed help transitioning her gardening and landscaping business to QuickBooks after her bookkeeper retired. Having no prior experience with this Accounting Software, I anticipated a learning journey. What I didn’t expect was to stumble upon significant co-mingling of personal and business expenses that required immediate attention.

My friend’s client, Liz, has been managing her finances manually for over a decade, recording everything in a handwritten ledger. However, upon delving into QuickBooks, it became apparent that Liz was paying several personal expenses directly from her business account. This included not just standard business expenses—like payments to pest control and nurseries—but also major personal bills such as her mortgage, utility costs, IRA contributions, and even gym memberships and cable bills.

Here’s a snapshot of what a typical month’s account activity looks like for Liz:

• 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: $4,000

From this, you can see that while many of the items listed are valid business expenses, others represent personal expenditures that should not be coming from a business account. This mixture of business and personal transactions poses a serious co-mingling challenge.

Upon further inquiry, I discovered that the SIMPLE IRA listed wasn’t an employer contribution, but rather Liz’s personal savings contribution—again charged to the business account. The reality became clear: there needs to be a separation of personal and business finances.

As I ponder how to approach this dilemma, I face a couple of dilemmas. How should I accurately account for these transactions in QuickBooks? Should I categorize personal expenses as “Owner Draws,” or is there a different protocol I should follow?

When I asked Liz and her retiring assistant about these issues, I was met with confusion and a bit of annoyance. They have always recorded everything in their handwritten ledger, passed it along to their accountant, and expected the accountant to handle the nuances.

So, is my concern warranted? Am I overreacting? This co-mingling issue isn’t just an Accounting headache—it’s a