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

Recently, I found myself stepping into a unique challenge when a friend reached out for assistance. After her bookkeeper retired, she needed help transitioning her gardening and landscaping business to QuickBooks—a task that turned out to be more complex than anticipated.

The business had been maintaining financial records manually for over a decade, and when I took on the role, I quickly realized I was facing a significant dilemma. It became clear that there was a serious issue of co-mingling funds: the business account was being used to cover numerous personal expenses.

Understanding Co-Mingling of Funds

For context, let’s look at some of the transactions from a typical month:

• 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

As these expenses were loaded into QuickBooks, it became apparent that while many of the charges—like pest control and fertilizers—were legitimate business-related costs, others such as the mortgage, utilities, and personal IRA contributions were not.

The Challenge of Classification

To complicate matters further, when I inquired about the SIMPLE IRA contributions, I learned they were not employer contributions but rather personal payments made from the business account. This raised several questions regarding how to properly categorize these transactions in QuickBooks without prompting frustration from the owner or the retired administrator.

Seeking a Solution

I understand the importance of maintaining clear financial boundaries between personal and business expenses. After all, accurate financial reporting relies on proper categorization. However, when discussing potential changes to their Accounting practices, both the owner and the retiring admin appeared puzzled and slightly resistant. They were accustomed to their old ways and seemed unbothered by the muddled financial records, which they would simply hand off to their accountant for clarification.

So, how should I handle these personal expenses in QuickBooks? Should they be classified as “Owner Draws,” or is there another protocol I should follow?

Your Guide to Addressing Co-Mingling Issues

If you find yourself in a similar situation, here are some steps you can take:

1. Educate the Client: