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

Stepping into the role of a bookkeeper can sometimes feel overwhelming—especially when transitioning from manual record-keeping to a digital platform like QuickBooks. Recently, I found myself in this exact situation while assisting a client, Liz, who owns a gardening and landscaping business. After her long-time bookkeeper retired, she needed help modernizing her Accounting practices, and I eagerly took on the challenge. However, what I discovered raised significant concerns about proper financial management and co-mingling of personal and business expenses.

The Challenge: Understanding Expenses

During my initial review of Liz’s accounts, I realized a troubling pattern: significant personal expenses were being paid out of the business bank account. These included items such as mortgage payments, utility bills, IRA contributions, and even gym memberships. While business-related expenses like pest control and landscaping supplies were also present, the blending of personal and business finances posed a considerable problem.

Here’s a glimpse of a typical month, highlighting these glaring discrepancies:

• Business Expenses:
• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600

• Ed’s Nursery: $2,000

• Personal Expenses:

• Chase Bank (Mortgage): $3,500
• Comcast: $200
• AT&T: $200
• SIMPLE IRA: $4,000 (personal contribution)

In total, these transactions illustrated a significant co-mingling issue that could complicate Liz’s Accounting and tax obligations.

Seeking Clarity

In discussions with Liz and her former bookkeeper, I attempted to clarify the rationale behind these payments. Unfortunately, they seemed perplexed by my inquiries, relying heavily on their previous practice of recording everything manually and leaving it to an accountant to decipher the details at year-end.

This approach raised a red flag. If personal expenses remain intertwined with business income and expenses, not only is it challenging to provide accurate financial reports, but it could also land Liz in hot water come tax season.

Best Practices: How to Handle Co-Mingled Expenses

So what’s the solution? As I sifted through the complexities, I considered how best to address the dual nature of these transactions within QuickBooks:

1. Identify and Separate Expenses: The first step is to help Liz understand the importance of separating personal expenses from business expenses. This is