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

Transitioning to QuickBooks after a decade of manual Bookkeeping can be a daunting experience, especially when encountering complexities like co-mingling of personal and business expenses. Recently, I found myself in such a situation after being brought on to assist a client, Liz, whose gardening and landscaping business had been running smoothly with a handwritten ledger until now.

The Challenge at Hand

Liz’s business was well-established, but the retirement of her assistant/bookkeeper left her looking for assistance. Eager to dive into QuickBooks, I took on the role, only to discover that the financial dealings were far more complicated than I had anticipated.

Upon reviewing the transactions flowing through the business account, it became clear that numerous personal expenses were being indiscriminately paid using business funds. Items such as mortgage payments, utility bills, gym memberships, and IRA contributions were intermixed with legitimate business expenditures, such as services from pest control companies and nurseries.

A Case Study in Co-Mingling

To illustrate the situation, here’s a snapshot of a typical month’s expenses for Liz’s business:

| Vendor | 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 |

While I could identify valid business-related costs like those associated with pest control and fertilizers, many other items stood out as personal: the mortgage, phone bills, and even personal IRA contributions.

The Path Forward

This raises the question: how should these tangled expenses be handled in QuickBooks? Should I categorize the personal expenses as an “Owner Draw,” or is there a better route to take?

While I could suggest that Liz separate her finances to avoid these mixed transactions in the future, this can be a tough conversation to initiate, especially when the client appears perplexed or even frustrated by their sudden need to adapt to new Accounting practices.

Seeking Clarity and Solutions

I reached out to Liz and the retiring bookkeeper for insights, but the responses indicated a steadfast reliance on