Navigating Client Co-Mingling Issues in QuickBooks: A Guide for New Bookkeepers

Recently, I took on a challenging yet rewarding project that involved assisting a friend with transitioning their manual Bookkeeping system to QuickBooks. After a decade of managing finances by hand, my friend’s assistant had retired, presenting an opportunity for me to step in. This new endeavor quickly revealed the complexities of Accounting in a small business environment.

The primary challenge? The business owner, Liz, has been inadvertently mixing personal and business expenses. This situation, known as co-mingling, poses significant Accounting challenges and can complicate financial reporting. Let’s delve into the details for a clearer understanding of how to tackle this issue using QuickBooks.

The Scenario: A Compilation of Expenses

In examining the records from Liz’s gardening and landscaping business, I discovered a mixture of expenses drawn from the same business account. While some expenses, such as payments to pest control, fertilizer suppliers, and nurseries, are legitimate business expenses, others, including the mortgage, utility bills, and personal IRA contributions, clearly fall under personal finance.

Here is a snapshot of what the expense ledger looked like:

• 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

Identifying the Co-Mingling Issue

Upon reviewing the accounts in QuickBooks, it became clear that Liz was paying for several personal expenses through her business account. For instance, the mortgage and utility bills shouldn’t be a part of business transactions. This overlap raises a crucial question: how do I account for these personal expenses appropriately?

When I inquired about the SIMPLE IRA contribution, the former assistant mentioned that it was Liz’s personal payment—not an employer contribution. This further confirms the necessity for separation between business and personal finances.

Navigating the Solution

Before diving into solutions, I faced a pressing concern: How to address this with Liz without raising frustration or resistance, considering their longstanding method of relying on handwritten ledgers?

One immediate approach to remedy this situation is to categorize personal expenses as “Owner Draws” in QuickBooks.