Navigating Client Co-Mingling in QuickBooks: A Beginner’s Dilemma

A close acquaintance faced a challenge recently when their long-time bookkeeper retired, leaving them in search of a new way to manage their financial records. After hearing about their struggle, I offered to help them transition to QuickBooks, thinking it would be a great opportunity for me to learn the software. However, I soon discovered that I was in a bit over my head.

The client, Liz, appeared to be using the business account for significant personal expenses, which included payments such as mortgage, utilities, IRA contributions, gym memberships, and cable bills. For the last decade, Liz and her bookkeeper had maintained their financial records manually, which likely contributed to the confusion.

Liz runs a gardening and landscaping business, and I found a typical month’s expenses listed like this:

• 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 Contribution: $4,000

As I started inputting these financial records into QuickBooks, it became apparent that multiple personal expenses were being charged to the business account. While the pest control and nursery expenses clearly relate to the business, the mortgage and utility bills raised red flags about co-mingling funds. To complicate matters further, the SIMPLE IRA contribution was identified as Liz’s personal contribution, also drawn from the business account.

This situation left me pondering the best way to handle these discrepancies. Should I advise Liz to separate her personal expenses from the business or categorize all personal expenditures as an “Owner Draw” in QuickBooks?

While I attempted to seek clarity from both Liz and her retiring bookkeeper, they seemed somewhat annoyed and bewildered by my questions. They have been accustomed to maintaining a handwritten ledger and relying on their accountant to make sense of any discrepancies at year-end.

Am I being overly cautious, or is this a legitimate concern that requires careful Accounting? If this co-mingling is indeed an issue, what approach should I take in QuickBooks to accurately reflect these financial realities?

Navigating the complexities of co-mingling personal and business funds can be