Navigating Client Co-Mingling Issues: A QuickBooks Guide for Small Businesses

Navigating the world of Accounting can be daunting, particularly when dealing with the complexities of co-mingling personal and business expenses. Recently, I found myself in a challenging situation when I was hired to assist a local gardening and landscaping business in transitioning from handwritten ledgers to QuickBooks.

My client, Liz, had just lost her long-time assistant/bookkeeper to retirement, and despite her familiarity with manual Bookkeeping, she was at a crossroads. With a decade’s worth of financial records, I stepped in, thinking I could help streamline her Accounting processes. Little did I know that I was embarking on a steep learning curve.

As I delved into Liz’s financial records, I quickly discovered a troubling trend: numerous personal expenses were being processed through the business account. These expenditures included significant items such as mortgage payments, utility bills, gym memberships, and even contributions to her Individual Retirement Account (IRA).

To illustrate the financial landscape, here’s a summary of typical monthly transactions that I encountered:

• 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

From my analysis, it became clear that while many of these charges (like pest control and fertilizers) were legitimate business expenses, others, such as the mortgage and utility payments, presented a considerable co-mingling issue.

After discussing with the departing admin, I found out that the SIMPLE IRA contribution was, in fact, Liz’s personal investment, made from her business funds. This revelation left me with one pressing question: how should I categorize these expenses in QuickBooks?

The alternatives seemed limited. On one hand, I could politely advise Liz to separate her personal expenses from business transactions. However, given the established patterns and methods she had grown accustomed to over the years, I sensed this would be a tough sell. On the other hand, I contemplated treating these personal expenditures as “Owner Draws” to maintain clarity in the financial reports.

When I broached these topics with Liz and her former assistant, the reactions were mixed—ranging from confusion to mild annoyance. It became evident that their traditional approach of recording everything in a ledger