Navigating Client Co-Mingling Issues in QuickBooks: A Guide

Recently, I took on a new challenge that involved helping a friend who needed assistance transitioning from a manual Bookkeeping system to QuickBooks. They had managed their financial records by hand for the past decade, and with the retirement of their assistant/bookkeeper, it was time for an upgrade. However, as I delved into the world of QuickBooks, I quickly recognized that I was faced with a considerable hurdle.

The client, whom I’ll refer to as Liz, has been mixing personal and business expenses in a way that raised significant red flags. A close examination of her accounts revealed payments for significant personal costs — including mortgage, utilities, IRA contributions, gym memberships, and cable services — all extracted from the business account.

To give you a clearer picture, here’s how a typical month’s transactions looked:

• 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: $4,000

As I imported these records into QuickBooks, I noticed that legitimate business expenses were commingling with personal expenditures. Services like pest control and fertilizing are indeed valid business expenses, but the mortgage payment and utility bills raised concerns about the mixing of personal and business finances.

One issue that piqued my curiosity was the SIMPLE IRA contribution. Upon investigating, I learned that rather than being an employer contribution, it was Liz’s personal deposit — made directly from the business account.

This situation leads to a crucial question: how should I approach these discrepancies in QuickBooks? Should I simply categorize the personal expenses as an “Owner Draw,” or is there a more robust method for addressing them?

Despite my attempts to discuss these concerns with Liz and her retiring admin, they seemed perplexed and somewhat irritated. Having relied on a handwritten ledger for so long, they were accustomed to simply passing the information to an accountant without much scrutiny.

This raises an important topic that many small business owners may overlook. Co-mingling personal and business expenses can lead to significant Accounting challenges, impacting financial clarity and tax reporting. So, as I navigate this learning curve, I