Client Co-Mingling Issue – how to account for these “expenses” in QuickBooks?

Addressing Client Co-Mingling Issues in QuickBooks: A Guide to Best Practices

Recently, I found myself in an interesting position while assisting a friend who was transitioning from manual Bookkeeping to QuickBooks. Her prior assistant/bookkeeper had just retired after a decade of maintaining the records by hand, and my friend was in search of someone to help modernize the process. I eagerly accepted the challenge, but quickly discovered that I had taken on more than I anticipated.

As I delved into the financial records, it became clear that there were significant issues with co-mingling funds. The business in question is a landscaping and gardening operation run by a client named Liz. While some expenses were legitimate for the business, a substantial portion of payments made from the company account appeared to be for personal expenditures, including:

• Mortgage payments
• Utility bills
• IRA contributions
• Gym memberships
• Cable and phone services

In examining a typical monthly ledger, it revealed a mix of business and personal transactions, such as:

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

The distinction between business and personal expenses was muddled as they had all been funneled through the same business account. While payments to pest control, fertilizer suppliers, and tree nurseries are straightforward business expenses, the inclusion of personal costs such as home mortgage payments and utility bills hints at concerning co-mingling of funds.

Upon further inquiry, I learned that the SIMPLE IRA had been treated as a personal contribution rather than an employer-sponsored one, further complicating the issue. This situation raises a fundamental question: how should one manage such co-mingled expenses within QuickBooks?

Steps to Navigate Co-Mingling in QuickBooks

1. Categorize Transactions Effectively: One of the initial steps is to identify which transactions belong to the business and which are personal. It is advisable to categorize any personal expenses as “Owner Draw” in QuickBooks. This can help delineate personal expenditures from business-related transactions.

2. **Adv