Navigating Client Co-Mingling Issues: Effective Accounting in QuickBooks

Recently, I took on a project that showcased the complexities of maintaining proper Accounting standards within a small business. My friend, whose assistant/bookkeeper retired after nearly a decade of manual Bookkeeping, sought my assistance in transitioning to QuickBooks. While I thought I was up for the challenge, I soon realized the situation was more complicated than expected.

The primary issue at hand was the co-mingling of personal and business expenses in their finances. The business in question, a landscaping and gardening company owned by a client named Liz, had been using their business account not just for operational costs, but for substantial personal expenses as well. This included payments for the mortgage, utility bills, IRA contributions, gym memberships, and even cable services—all charged to the same account used for legitimate business transactions such as pest control and landscaping supplies.

Understanding the Expense Structure

To illustrate, consider a sample of their 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 (Cable): $200
• AT&T (Phone): $200
• SIMPLE IRA: $4,000

Inserting these records into QuickBooks made it evident that personal costs were mixed with business ones, leading to significant co-mingling. While payments to pest control, fertilizer suppliers, and nurseries could be categorized as valid business expenses, costs associated with mortgages, utilities, and personal retirement contributions should not have been paid from a business account.

Seeking Solutions

In my discussions with the retiring administrator, I learned that the SIMPLE IRA contribution was a personal deposit, not an employer match. This prompted the question: how should these co-mingled expenses be treated within QuickBooks? Should they simply be labeled as “Owner Draw” transactions?

Although I tried to clarify these concerns with Liz and the previous bookkeeper, it became apparent they were hesitant and somewhat bewildered by my inquiries. For them, the process of jotting down entries in a ledger felt straightforward, while handing them off to an accountant seemed sufficient to relieve them of further scrutiny.

Addressing the Challenges

This task may seem daunting, but it is vital to address these