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

When a friend’s bookkeeper retired, they faced a challenge that many small business owners encounter—transitioning from handwritten Accounting to a digital platform like QuickBooks. After some discussion, I accepted the opportunity to assist in this transition. However, it quickly became apparent that I was entering a complex world of mixed personal and business finances.

The client, Liz, operates a gardening and landscaping business, but as I started to integrate her financial records into QuickBooks, I discovered a troubling pattern. Major personal expenses, such as mortgage payments, utility bills, IRA contributions, and even gym memberships, were being paid directly from the business account. Here’s a snapshot of her monthly expenses:

• 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 expenditures for pest control, fertilizer, and nursery supplies clearly align with business operations, the inclusion of home-related expenses in the business records raises significant co-mingling concerns. Notably, Liz’s SIMPLE IRA contribution turned out to be a personal investment, further complicating the situation.

As I delved deeper, I realized the retiring administrator was accustomed to a straightforward Accounting method: logging everything in a handwritten ledger and later handing the records to an accountant. This method, while functional, lacks the separation necessary for clear financial reporting and compliance.

This leads to the pressing question: how should I address these co-mingling issues in QuickBooks? Should I simply categorize the personal expenses as “Owner Draws,” or is there a more appropriate approach?

It’s clear that without explicit guidance, Liz and her team might continue their old practices, which could lead to problems during tax season or even potential legal issues down the line. To help these small business owners embrace better financial management, I plan to:

1. Educate: I’ll emphasize the importance of separating personal and business expenses to ensure accurate Accounting and tax compliance.

2. Recommend Changes: Encouraging a new system where personal expenses are tracked separately might mean opening a