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

Navigating Client Co-Mingling Issues: A QuickBooks Dilemma

Recently, I took on a challenging role helping a friend transition her long-standing manual Bookkeeping system to QuickBooks after her bookkeeper retired. This client, Liz, has been running a gardening and landscaping business for over a decade, recording all expenses by hand. But as I delved into the details, I found myself facing a common yet complex issue: the co-mingling of personal and business finances.

As I began reviewing the invoices and payment records, it quickly became evident that Liz was using her business account for a range of personal expenditures. These expenses included significant items such as her mortgage, utility bills, gym memberships, and even IRA contributions. Here’s a quick rundown of a typical month’s expenses from their records:

• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Home & Auto Insurance: $3,000
• Ed’s Nursery: $2,000
• Chase Bank (Mortgage): $3,500
• Comcast (Cable): $200
• AT&T (Phone): $200
• SIMPLE IRA Contribution: $4,000

While the charges from pest control, fertilizer, and nursery supplies are clearly business-related, the costs associated with her mortgage, utilities, and insurance represent a troubling blend of personal and business finances.

During my review, I learned from the retiring bookkeeper that the SIMPLE IRA payment isn’t a business-sponsored contribution but rather a personal investment Liz is making directly from the business account. This situation left me perplexed and unsure of how to proceed with these transactions in QuickBooks.

Here are a few questions I’m grappling with:

1. Should I categorize these personal expenses as “Owner Draws” in QuickBooks?
2. What is the best approach to rectify this issue without putting Liz and her assistant on the defensive?
3. Is this a common occurrence in small businesses, or am I overreacting to a detail that can be overlooked?

I reached out to both Liz and her retiring assistant for clarification, but they seemed puzzled by my inquiries, accustomed to the simplicity of their hand-written ledger system. Their mindset appears to be that as long as they hand over these records to their accountant, the details will be sorted out by someone else.

This situation raises an important discussion about the implications of