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

Transitioning into a role as a bookkeeper can present unexpected challenges, especially when dealing with a long-standing client accustomed to traditional methods. Recently, I took on a project to assist a friend whose bookkeeper had retired. Their approach to Bookkeeping had remained largely manual for over a decade, which meant I was stepping into a complex situation when I started using QuickBooks for the first time.

The client, Liz, runs a gardening and landscaping business but has been mixing personal and business finances in a way that raises several red flags. While it’s straightforward to account for expenses related directly to the business—like pest control and fertilizer purchases—the significant withdrawal of funds for personal expenses from the business account, including mortgage payments, utilities, and even gym memberships, complicates matters considerably.

Consider a typical month for Liz’s business:

| Expense Description | 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 |

Here lies the conundrum: legitimate business expenses coexist in the same account as significant personal expenditures. The insurance, mortgage, cable, phone bills, and even IRA contributions are in question. Particularly problematic was learning that the SIMPLE IRA she’s contributing to is a personal contribution, being paid from a business account.

So what do you do when faced with such a messy financial picture?

Understanding Co-Mingling Issues

First and foremost, co-mingling funds can lead to serious complications in financial reporting and tax obligations. Personal expenses paid through a business account blur the lines, making it difficult for anyone, including accountants, to determine the true financial health of the business.

Here’s how to navigate this situation:

1. Clarify Expense Types: Conduct thorough discussions with Liz and her retiring assistant about which expenses should be classified as personal. It’s essential to educate them on the importance of separating personal and business finances for clear, accurate reporting.

2. Addressing Owner Draws: When entering these expenditures in