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

Recently, a friend of mine sought assistance in transitioning their business Bookkeeping into QuickBooks after their long-standing assistant/bookkeeper retired. Having spent a decade relying on handwritten records, the switch to digital Accounting seemed daunting, but I was eager to learn and stepped in to help. However, I quickly discovered that I had taken on a much larger challenge than anticipated.

The business in question, owned by a client named Liz, is a gardening and landscaping service. Unfortunately, I found that Liz had been using her business bank account to cover various personal expenses, including significant items such as her mortgage, utility bills, IRA contributions, gym memberships, and even cable services. This presented a clear case of co-mingling funds, which can complicate Accounting and tax situations.

To illustrate, a typical month’s activity looked something like this:

• 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: $200
• AT&T: $200
• SIMPLE IRA Contribution: $4,000

While it’s clear that expenses related to pest control, fertilizing, and nursery supplies are legitimate business costs, the inclusion of the mortgage and other personal services raises red flags regarding financial best practices. Moreover, I discovered that the SIMPLE IRA payment was not an employer contribution but rather a personal deposit from Liz’s account. This was another indication of the blurred lines between personal and business finances.

Faced with these challenges, I found myself uncertain about how to proceed. My first instinct was to recommend that Liz segregate her personal expenditures from her business account for clarity and compliance. However, I felt the need to address how to account for these transactions in QuickBooks without overwhelming her.

The pressing question remained: should I categorize the non-business-related expenses as “Owner Draw” in QuickBooks? Communication with Liz and the retiring assistant revealed some reluctance on their part; they seemed puzzled by my inquiries, having previously managed everything via their hand-written ledger and leaving the final Accounting to their accountant.

This situation raises several important considerations:

1. Is this co-mingling a serious problem? Absolutely.