Client Co-Mingling Issue – how to account for these “expenses” in QuickBooks?

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

Recently, I took on a new client who is transitioning from handwritten Bookkeeping to QuickBooks. My friend, who runs a landscaping and gardening business, needed assistance following the retirement of her long-time assistant/bookkeeper. Armed with eagerness to learn about QuickBooks, I accepted the challenge, only to discover that I was facing more complexity than anticipated.

Upon reviewing their financial records, it became evident that the client, whom we’ll call Liz, has been utilizing the business account for a multitude of personal expenses. The impressive amalgamation includes payments for her mortgage, utilities, IRA contributions, gym memberships, and even her cable and phone bills—items that clearly blend personal finances with business operations.

To illustrate, consider a typical month’s transactions for their business:

| Vendor | 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 payments to pest control, fertilizer suppliers, and nurseries are legitimate business expenses, the mortgage, cable, phone bills, and personal IRA contributions signal a significant co-mingling issue that cannot be overlooked.

In my discussions with Liz and the retiring assistant, I learned that the SIMPLE IRA contribution is not an employer’s contribution but rather Liz’s personal input, processed from the business account. This revelation has left me pondering the appropriate course of action.

What Should I Do About These Co-Mingled Expenses?

The dilemma now lies in how to manage these personal expenditures in QuickBooks. Should I categorize all personal expenses as “Owner Draws,” or is there a more effective method?

My initial inquiries into the reasons behind these financial patterns were met with confusion and a hint of frustration from both Liz and her assistant. They seemed accustomed to the old-fashioned method of recording everything in a handwritten ledger and forwarding it to their accountant without further scrutiny.

Am I Overreacting?

This situation raises important questions for any new bookkeeper or financial manager. Is my concern justified? The answer is a resounding