Navigating Client Co-Mingling Issues in QuickBooks: A Guide for New Bookkeepers
Recently, I embarked on a journey into the world of QuickBooks, stepping in to assist a friend who was grappling with Bookkeeping after their long-time assistant retired. The formerly hand-written records – maintained over a decade – were set to transition to digital, but I quickly found myself navigating complex waters.
The client in question, Liz, had been utilizing her business account to cover an array of substantial personal expenses. This included payments for her mortgage, utilities, IRA contributions, gym memberships, and cable bills, among others.
The Challenge of Co-Mingling Funds
Liz operates a gardening and landscaping business, and while some of the expenditures recorded were undeniably business-related, such as payments to pest control and suppliers, a significant portion comprised personal expenses derived from the same business account. Here’s a snapshot of a typical month for her:
| Vendor | 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 importing these records into QuickBooks, a glaring issue emerged: Payments made for both personal and business expenses were mixed together, creating what is known as co-mingling.
Understanding Co-Mingling and Its Implications
Co-mingling is problematic for several reasons, particularly regarding accurate Accounting and tax compliance. Legitimate business expenses should be clearly delineated from personal expenses to ensure that financial statements are accurate and to prevent potential issues during tax season.
In my discussions with Liz’s retiring assistant, it became clear that the SIMPLE IRA payment was actually a personal contribution, rather than an employer contribution. Faced with this kind of mixing, I found myself unsure of how to proceed.
Finding a Solution: Classifying Expenses in QuickBooks
Recognizing the need for clarity in Liz’s financial records, I considered how to categorize these expenses effectively in QuickBooks. My initial instinct was to declare the personal expenditures as “Owner Draws.” This could help in separating personal costs while maintaining a clear record of business transactions.
However
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