Navigating Client Co-Mingling Issues in QuickBooks

When a close friend of mine faced a transitional challenge after their assistant/bookkeeper retired, they sought help to transition their financial records to QuickBooks. After a brief interview, I accepted the task, eager to expand my QuickBooks knowledge. However, I quickly found that I had taken on more than I bargained for.

The client in question, who I’ll refer to as Liz, has been using a handwritten ledger to keep track of finances for her gardening and landscaping business for over a decade. Upon reviewing her records, I discovered a troubling trend: significant personal expenses were being paid out of her business account. These expenses included her mortgage, utility bills, IRA contributions, gym memberships, and even cable charges.

To illustrate the situation, here is an overview of a typical month’s transactions:

| Vendor | Amount |
|————————–|———|
| Bob’s Pest Control | $1,000 |
| Jill’s Fertilizing | $600 |
| Insurance Co. (Home & Auto) | $3,000 |
| Ed’s Nursery | $2,000 |
| Chase Bank (Mortgage) | $3,500 |
| Comcast | $200 |
| AT&T | $200 |
| SIMPLE IRA | $4,000 |

As I started importing these records into QuickBooks, it became apparent that while many transactions, such as those related to pest control and gardening supplies, were legitimate business expenses, items like Liz’s mortgage and utility bills raised significant concerns regarding co-mingling of funds. This not only blurred the lines between personal and business finances but could also lead to potential issues during tax filing.

One particular item that stood out was the SIMPLE IRA contribution. I inquired if this was an employer contribution, only to find out that it was Liz’s personal contribution funded through the business account. This revelation left me questioning the best approach to rectify the situation.

So, how should one handle such a co-mingling issue in QuickBooks? My immediate thought was to mark all personal expenses as an “Owner Draw.” However, this seems like a temporary solution rather than a long-term fix.

I’ve tried discussing these concerns with Liz and her retiring admin, but my questions were met with confusion and annoyance. They’re accustomed to recording everything in their handwritten ledger and simply handing it over to their accountant at year’s end