Navigating Client Co-Mingling Issues in QuickBooks: A Guide for Small Business Owners

Recently, a friend reached out for assistance with transitioning her gardening and landscaping business to QuickBooks after her long-time bookkeeper retired. Over the past decade, they had been maintaining their financial records manually, and the need for modernization was clear. I was excited to step in and learn the ins and outs of QuickBooks, but I quickly found myself grappling with a significant issue: client co-mingling of funds.

The Challenge of Co-Mingling Expenses

As I delved into their financial records, it became apparent that Liz, the business owner, had been using her business account to cover various personal expenses. Items such as mortgage payments, utility bills, IRA contributions, gym memberships, and cable expenses were all traced back to the same account that held the business income from clients like Bob’s Pest Control and Jill’s Fertilizing.

To illustrate, a snapshot of a typical month’s transactions might look like this:

| Transaction | 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 |

While the spending on pest control, fertilizing, and nursery services seemed to be legitimate business expenses, the inclusion of personal expenses raised serious concerns about the proper management of financial resources.

Seeking Clarity on Accounting Practices

Upon reviewing the transactions, I discovered that even the SIMPLE IRA deduction, which I initially assumed was a business contribution, was actually a personal contribution made by Liz directly from the business account. This realization compounded my worries about the co-mingling of funds and its implications for Accounting.

When I approached the retiring bookkeeper with my findings, she appeared perplexed and somewhat dismissive of my concerns. After all, they had been accustomed to recording everything in a handwritten ledger and submitting it directly to their accountant for reconciliation. It’s clear they had not previously considered how these practices could impact their financial reporting.

Finding a Solution

Faced with this predicament, I needed to determine how to properly categorize these mixed expenses in QuickBooks