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

When stepping into the world of Accounting Software, particularly QuickBooks, it can be daunting—especially for those transitioning from manual Bookkeeping. Recently, a friend approached me for assistance with her gardening and landscaping company after their long-time bookkeeper retired. They had been maintaining financial records by hand for over a decade, and now they required a digital solution. Eager to expand my knowledge of QuickBooks, I accepted the challenge, only to quickly find myself facing a complex problem: the co-mingling of personal and business expenses.

The Problem of Co-Mingling

Upon examining the company’s financial transactions, it became apparent that the owner, Liz, was using her business account to cover a myriad of personal expenses. This included payments for her mortgage, utilities, gym memberships, and even contributions to her IRA—all transactions that should not be recorded as business expenses.

To illustrate the situation, a snapshot of a typical month revealed a mix of legitimate business costs alongside personal spending:

• 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 expenses related to pest control, fertilizers, and nursery supplies clearly support the business, the payments for personal services like a mortgage, cable, and phone bills raise red flags. Furthermore, the SIMPLE IRA contribution turned out to be a personal payment rather than an employer contribution, highlighted by the prior bookkeeper’s practices.

Finding a Solution

Confronted with this co-mingling issue, I sought guidance on how to appropriately account for these transactions in QuickBooks. A straightforward solution seems to involve classifying personal expenditures as “Owner Draws.” This adjustment allows the business owner to differentiate between company and personal expenses on financial reports.

However, as I engaged in discussions with both Liz and the retiring bookkeeper about these discrepancies, I faced bewilderment and even annoyance. They’ve grown accustomed to their manual system, wherein all expenses simply melded together, leaving it to their accountant to sort things out later.

What Should You Do?

If you encounter a similar situation, it’s essential to take a proactive stance:

1. **Educate