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

When stepping into the world of Bookkeeping, especially in a scenario where traditional methods have been employed for years, unexpected challenges can arise. A recent experience I had with a client—let’s call her Liz—highlighted a significant issue many small business owners face: co-mingling of personal and business expenses.

After Liz’s long-time assistant/bookkeeper retired, I was brought on to help transition her financial records into QuickBooks. The first thing I discovered was that Liz and her former bookkeeper had been diligently keeping track of their finances by hand for about a decade. As someone keen to learn QuickBooks, I took the opportunity, excited yet realizing that I might be stepping into deeper waters than anticipated.

The Issue at Hand

Upon diving into Liz’s transactions, I noticed a concerning pattern: personal expenses were being paid out of the business account. This gardening and landscaping business had several legitimate expenses—for example, payments to pest control and nurseries. However, Liz also paid for her mortgage, utilities, gym memberships, and even her IRA contributions through the same account.

To illustrate, here are some typical transactions I encountered:

| 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 |

It’s evident that while some expenses are clearly associated with the business, others, such as the mortgage and personal utility bills, represent serious co-mingling of funds.

Seeking Clarity

I attempted to clarify these transactions with Liz and the retiring admin. However, they expressed confusion and even mild annoyance at my inquiries. Their process of using a handwritten ledger provided little transparency regarding the distinction between personal and business finances, as they relied on their accountant to sift through it all at tax time.

Finding a Solution

This situation raises crucial questions: What should I do about these personal expenses? Should I simply categorize them in QuickBooks under “Owner Draws,” or find another method to handle them? Is it necessary to insist on