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

Navigating the transition to QuickBooks can be a significant challenge, especially if you’re stepping into the role of bookkeeper for the first time, as I recently discovered when assisting a friend. After a decade of relying on hand-written records, my friend Liz found herself without the help of her long-time assistant/bookkeeper, and I was eager to lend a hand. However, I soon discovered that I was grappling with more than just a familiarization with software—I was facing a complex issue of financial co-mingling.

Understanding the Problem

In examining the finances of Liz’s gardening and landscaping business, I noticed a troubling trend: personal expenses were being paid through the business account. To illustrate, let’s take a look at some typical monthly expenses:

• 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 (Cable Bill): $200
• AT&T (Phone Bill): $200
• SIMPLE IRA Contribution: $4,000

While the payments for pest control, fertilization services, and nursery purchases appear to be legitimate business expenses, the mortgage, utility bills, and personal IRA contributions indicate a significant co-mingling issue between business and personal finances.

The Reality of Co-Mingling

What complicates matters further is that discussions with the retired bookkeeper and Liz have left me feeling perplexed. The management of these records has primarily revolved around hand-written ledgers, with the practice of recording everything together leading to confusion about what qualifies as a business expense versus what is personal.

Exploring Solutions

As I began populating QuickBooks with these transactions, the financial disarray raised a central question: how should personal expenses be handled? Should these charges be classified as “Owner Draws”? While this seems to be the simplest workaround, I’m aware that categorizing personal expenses correctly is crucial for accurate financial reporting and tax preparation.

Although Liz and her former assistant have been accustomed to a more laid-back approach, it’s evident that a proper Accounting method needs to be established to protect the integrity of the business’s financial records moving forward.

What to Do Moving Forward

1. Educate the Client: Begin by addressing the need for clear