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

Recently, a friend approached me needing assistance with her business’s Bookkeeping after her veteran assistant retired. They had been managing their financial records manually for a decade, so transitioning to QuickBooks seemed like a significant leap. As someone eager to dive into learning about QuickBooks, I took the plunge.

However, I quickly discovered a considerable challenge: The business owner, Liz, had been using the company’s account to pay for numerous personal expenses such as her mortgage, utility bills, IRA contributions, gym memberships, and cable services. This mix of personal and business transactions, known as “co-mingling,” raised several red flags as I began to set everything up in QuickBooks.

To provide a clearer picture, here’s a glimpse of a typical month’s transactions for Liz’s gardening and landscaping company:

| Transaction | Amount |
|——————————|——–|
| 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 |

Upon reviewing these entries, I noted that while expenditures for pest control, fertilizers, and nursery supplies clearly align with the business’s operations, payments related to Liz’s mortgage and personal bills stood out as problematic. To complicate matters, Liz’s contributions to her SIMPLE IRA, which were also drawn from the business account, are personal rather than employer-sponsored.

Faced with such situations, I found myself at a crossroads. What approach should I take in Accounting for these mixed expenses in QuickBooks? Should all personal expenditures be categorized as an “Owner Draw”? It was not practical or ethical to continue treating these personal outflows as legitimate business expenses.

In my attempts to clarify these issues with both Liz and the retiring admin, I sensed resistance and confusion. They were accustomed to jotting everything down manually and then handing over the records to their accountant, who sorted it out later.

So, what is the best course of action in this sort of scenario? Am I overreacting, or does this present a legitimate Accounting challenge? After some contemplation, it’s clear that clarity is needed in separating personal and business expenses