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

Taking on a new Bookkeeping role can be both exciting and overwhelming, especially when stepping into the shoes of a retiring assistant who has managed the books manually for over a decade. Recently, I encountered such a scenario with a gardening and landscaping business, prompting a deep dive into how to manage co-mingling expenses when transitioning to QuickBooks.

The Challenge of Co-Mingling Expenses

Upon analyzing the business’s financial records, it became clear that personal and business expenses were being paid from the same account. Common individual expenses such as mortgage payments, utility bills, retirement contributions, and even gym memberships were mixed in with legitimate business costs like pest control services and nursery supplies. This co-mingling of funds raised significant concerns regarding proper Accounting practices.

Here’s a snapshot of the typical 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: $200
• AT&T: $200
• SIMPLE IRA: $4,000

While business-related expenses are straightforward, the inclusion of personal expenditures complicates matters, making it clear that proper separation of finances is crucial.

Understanding Proper Categorization

As I began to input these records into QuickBooks, the need to distinguish between business and personal expenses became even more pronounced. Having contacted the retiring assistant for clarification, I learned that contributions to the SIMPLE IRA, for example, were not business expenses but rather personal contributions handled through the business account.

Finding a Solution

So, how do we address this co-mingling issue in QuickBooks? Here are a few strategies to consider:

1. Establish Owner Draw Accounts: One effective approach is to categorize personal expenses as “Owner Draws” in QuickBooks. This allows you to accurately track funds taken from the business for personal use, facilitating a clearer overview of the business’s financial health.

2. Communicate with the Client: It’s essential to engage the business owner to explain why proper financial segregation matters. While it may be frustrating for them—having been accustomed to a less formal system—it’s crucial for legal and tax