Navigating Client Co-Mingling Issues: Effective Strategies for Accounting in QuickBooks

Recently, I found myself lending a hand to a friend whose gardening and landscaping business was transitioning from manual Bookkeeping to QuickBooks after the retirement of their long-time assistant. Eager to learn and assist, I jumped at the opportunity, only to quickly realize the complexity of the financial situation I was stepping into.

The primary concern? A significant co-mingling of personal and business expenses in the company’s accounts. As I delved into the records, it became clear that personal bills like mortgage payments, utility charges, gym memberships, and IRA contributions were all coming out of the business account—an alarming sight for someone attempting to establish order in their financial records.

To illustrate the problem, consider the following typical monthly expenses for the business:

• 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 legitimate business expenses such as pest control and fertilizing services are clearly defined, items like the mortgage payment and utility bills raise red flags. This blending of personal and business finances not only complicates Bookkeeping but could also have legal ramifications.

Upon inquiring about certain transactions, I learned that the SIMPLE IRA contribution was, in fact, a personal investment by the owner, Liz, paid from the business funds. This revelation compounded my concerns about the proper way to approach these mixed expenses within QuickBooks.

Faced with this predicament, I wondered: How should I categorize these personal expenses? Should I simply mark them as “Owner Draw” in QuickBooks? While my instinct is to recommend separating these expenses, I find the owner and the retiring assistant somewhat perplexed by my concerns. They have operated effectively with handwritten ledgers for years, simply passing off information to their accountant without further scrutiny.

So, am I overthinking this? Is my concern justified, and if so, what are the best practices for managing these types of transactions in QuickBooks?

Solutions for Co-Mingling Issues

1. Educate the Client: Start by having an open discussion with the business owner about