Navigating Client Co-Mingling: How to Handle Personal Expenses in QuickBooks

Understanding how to properly manage a client’s finances can be daunting, especially if you’ve stepped into an Accounting role under unfamiliar circumstances. A recent experience shed light on a common issue that many small business owners face: co-mingling personal and business expenses.

The Challenge

A colleague recently reached out to me after her long-time bookkeeper retired, seeking guidance on transitioning to QuickBooks for their landscaping business. With over a decade of manual Bookkeeping behind them, it was a significant leap into the digital realm. I offered my assistance, thinking it would be an ideal opportunity to learn QuickBooks and help out. However, I quickly found myself facing a complex situation that was far more challenging than I anticipated.

The Situation

During my review of their financial records, I discovered that the owner, Liz, had been using the business account for substantial personal expenses. This included payments for mortgage, utility bills, gym memberships, and even IRA contributions—expenses that clearly fall outside the scope of business operations. The previous manual system involved a handwritten ledger, which hadn’t effectively separated these costs.

To illustrate, let’s look at a typical monthly expense outline for the business:

| Expense Type | 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 |

From this breakdown, business-related transactions like pest control and fertilizing seem justifiable, but personal expenses such as the mortgage and phone bills highlight a significant co-mingling issue.

Finding a Solution

The primary concern is how to address these personal expenditures while inputting data into QuickBooks. I posed a few questions to Liz’s retiring assistant about the SIMPLE IRA and discovered that, contrary to what might be standard practice, it was a personal contribution made from the business funds.

So, where do we go from here? Rather than directly confronting the client about the need for expense separation—which could create tension as they might find my inquiries frustrating—I need a practical approach.

My initial thought was to classify these