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

Recently, I ventured into a new role helping a friend’s client, Liz, transition from hand-written Accounting records to QuickBooks. After her long-time bookkeeper retired, Liz was eager to modernize her record-keeping, and I thought this would be a good opportunity to learn more about the software. However, I quickly discovered a significant challenge: the mixing of personal and business expenses within her accounts.

Liz runs a gardening and landscaping business, and while reviewing her financial activities for the month, I noticed a significant number of expenses that should not be categorized as business-related. Here’s a glimpse of what I found:

| Vendor/Expense | Amount |
|———————–|————|
| Bob’s Pest Control | $1,000 |
| Jill’s Fertilizing | $600 |
| Insurance Company | $3,000 |
| Ed’s Nursery | $2,000 |
| Chase Bank (Mortgage) | $3,500 |
| Comcast | $200 |
| AT&T | $200 |
| SIMPLE IRA | $4,000 |

While the expenses for pest control, fertilizers, and other supplies are clearly business-related, other charges, such as mortgage payments, utility bills, and IRA contributions, seemed to blur the lines between personal and professional finances. It’s important to properly categorize these transactions to maintain the integrity of Accounting records and ensure compliance.

Upon digging a little deeper, I discovered that the SIMPLE IRA listed was not an employer contribution but rather Liz’s personal retirement saving deducted from the business account. This presents a classic case of co-mingling funds, which could lead to complications during tax season and in financial reporting.

Addressing Co-Mingling: What Are Your Options?

In this scenario, the key question arises: How do you account for these personal expenses without overwhelming the client? Here are some steps to consider:

1. Educate the Client: It’s essential to communicate the importance of separating personal and business finances. While Liz and her previous assistant may be accustomed to lumping everything together, clarifying why this separation is crucial can help them understand the long-term benefits.

2. Owner Draws in QuickBooks: For immediate Accounting purposes, you might categorize personal expenses as an “Owner Draw.” This treatment can help keep personal and business