Client Co-Mingling Issue – how to account for these “expenses” in QuickBooks?

Navigating Co-Mingling Issues in QuickBooks: A Guide for Small Business Owners

Managing the finances of a small business can be a daunting task, especially when transitioning from traditional record-keeping to software like QuickBooks. Recently, I took on the challenge of assisting a local gardening and landscaping business that had long relied on handwritten ledgers. My journey into QuickBooks revealed some troubling financial practices that warrant attention.

The Situation

My friend’s client, Liz, found herself in a unique predicament after her bookkeeper retired. For the past decade, her finances were meticulously tracked by hand, but with the transition to QuickBooks, I quickly discovered a concerning trend: significant personal expenses were being paid from the business account. These expenses included:

• Home mortgage payments
• Utility bills
• IRA contributions
• Gym memberships
• Cable and phone bills

In contrast, legitimate business expenses like pest control, fertilizer, and nursery supplies were also being recorded. However, the line between personal and business expenses had blurred to a troubling extent.

To give you an idea of the situation, here’s a snippet of the monthly expenses that were documented:

| Description | Amount |
|——————————-|———-|
| 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 |

Upon examining these transactions in QuickBooks, it was clear that personal costs were intermixed with legitimate business expenses—a classic case of co-mingling.

The Challenge

As I delved deeper into the records, I discovered that the SIMPLE IRA contributions were, in fact, personal rather than employer contributions—yet they were still being deducted from the business account. This raised a crucial question: How should I properly account for these expenses in QuickBooks?

I attempted to discuss these issues with Liz and the retiring admin, but my inquiries were met with confusion; they were accustomed to their old ways and didn’t understand the implications of these practices. It became evident that this was a deeper issue than just accounting—this was about establishing clear financial boundaries.

Finding a Solution

So, where do we go from here?