Navigating Client Co-Mingling of Funds in QuickBooks: A Guide for New Bookkeepers

Recently, I took on a project that many newcomers to Accounting encounter: helping a client transition their financial records from traditional hand-written ledgers to an online platform, specifically QuickBooks. This situation arose when a friend of mine needed assistance after their long-time bookkeeper retired, and I jumped at the opportunity to expand my knowledge in QuickBooks.

However, my enthusiasm quickly turned into concern when I realized the extent of the financial entanglement within the client’s accounts. The business, a gardening and landscaping operation, was blending personal expenses with business transactions—a practice that can complicate financial management and reporting.

Upon analyzing the records, it became clear that significant personal costs were being paid from the business account. Here are some examples of the transactions that raised red flags:

| 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 |

While the expenditures related to pest control, fertilizing, and nursery supplies clearly serve legitimate business purposes, the payments for mortgage, utilities, and personal investment contributions were perplexing. It became evident that the client was co-mingling personal expenses with business finances—a major concern for anyone tasked with keeping accurate records.

Upon further inquiry, it was revealed that the contributions to the SIMPLE IRA were personal, not associated with business operations. This brought forth a significant dilemma: how should these co-mingled transactions be managed in QuickBooks? Is it acceptable to categorize personal expenses as “Owner Draws,” or is there a better method to address this issue?

Unfortunately, when I approached the owner and the retiring bookkeeper about these discrepancies, I encountered resistance. They seemed perplexed and somewhat irritated by my inquiries, as they were accustomed to a system that had worked for them in the past. However, the transition to a more formal Accounting method necessitates clarity and proper categorization.

Solutions for Addressing Co-Mingling in QuickBooks

1. Create Separate Accounts: The most effective solution