Client Co-Mingling Issue – how to account for these “expenses” in QuickBooks?

Navigating Client Co-Mingling Issues: A QuickBooks Dilemma

Recently, I had the opportunity to assist a friend whose bookkeeper had retired, leaving her in need of a reliable hand with QuickBooks for her gardening and landscaping business. Having just taken on this role, I quickly found myself facing a significant challenge: co-mingling of personal and business expenses.

In the era of traditional Bookkeeping, my friend and her former bookkeeper had maintained their records manually for nearly a decade. However, with the transition to QuickBooks, I discovered a troubling pattern. It appears that my friend’s business account is being used to pay for a range of personal expenses, including mortgage payments, utility bills, IRA contributions, gym memberships, and cable services.

For context, let’s look at a snapshot of some recent transactions in the business account:

| Transaction | Amount |
|————————————-|————|
| 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 |

While the payments to pest control, fertilizing services, and nurseries are clearly legitimate business expenses, items like the mortgage, home utilities, phone, and personal insurance represent a significant co-mingling issue.

When I inquired about the SIMPLE IRA payment, it was revealed that this was not an employer contribution, but rather a personal contribution from the business account. This raised an alarm for me regarding the clarity of financial separation between personal and business finances.

Now, I find myself at a crossroads. What is the best way to handle these personal expenses in QuickBooks? Should I categorize them as “Owner Draws,” or is there a more effective approach?

To compound the challenge, my inquiries about these expenses have been met with annoyance from both the business owner and the retiring admin. They seem to be accustomed to their previous method of blindly categorizing everything in a hand-written ledger for their accountant to sort out later.

So, am I overreacting to this situation? Is this a common issue for business owners who transition from manual Bookkeeping to software-based solutions? More importantly, how should I address