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

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

When taking on a new Accounting project, especially transitioning into digital tools like QuickBooks, one might encounter unique challenges that prompt a reevaluation of standard practices. Such was the case for me when I stepped in to help a friend whose business was in serious need of Accounting assistance.

My friend’s client, whom I’ll refer to as Liz, had relied on a handwritten ledger for over a decade, but with the retirement of her long-time bookkeeper, the time had come to embrace QuickBooks. Armed with enthusiasm but little experience, I took on the responsibility, only to quickly discover a significant co-mingling issue concerning Liz’s business account.

The Co-Mingling Dilemma

As I began to dig into the financial records, I noted a troubling pattern. Liz was using her business account not just for legitimate business expenses related to her gardening and landscaping operations but also for personal costs such as her mortgage, utilities, IRA contributions, gym memberships, and cable bills.

To illustrate, here’s a snapshot of some monthly transactions:

• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Insurance (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 first three entries clearly align with the business’s operations, the remaining expenses indicate a troubling overlap between personal and business finances.

Finding a Way Forward

Recognizing the severity of this situation, I approached Liz’s retiring assistant to clarify certain transactions. It turned out that the SIMPLE IRA contributions were not employer contributions but rather Liz’s personal deposits—again, made from the business account.

The big question loomed: How should these personal expenditures be addressed in QuickBooks? Simply initiating a dialogue hasn’t yielded much clarity; both Liz and her former assistant seemed perplexed by the concern, accustomed to aggregating everything into their handwritten records and letting their accountant handle discrepancies.

Seeking Solutions

As I ponder over the best way to handle this co-mingling issue, I find myself at a crossroads. Should I categorize personal expenses as an “Owner Draw” in QuickBooks to separate them from