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

Recently, I embarked on a new journey when a friend sought assistance for their gardening business, which had been relying on handwritten Bookkeeping for over a decade. With their longtime assistant/bookkeeper retiring, I decided to dive into the world of QuickBooks, eager to help out and learn in the process. However, I quickly found myself in a situation that left me feeling overwhelmed.

As I dug into the business’s financial records, it became apparent that personal and business expenses were being blurred—significantly. The business owner, Liz, was paying for various personal expenditures directly from the business account. These included substantial payments such as mortgage, utility bills, IRA contributions, gym memberships, and even cable subscriptions.

Example of Monthly Transactions

To give you a clearer picture, here’s a snapshot of typical monthly expenses:

• 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

Upon reviewing these transactions in QuickBooks, I noticed that all of them were being paid from the same business account. While some entries—like payments to pest control, fertilizers, and nurseries—could be justified as legitimate business expenses, others, such as mortgage payments, insurance, and phone bills, raised significant concerns regarding co-mingling.

I sought clarification from the retiring bookkeeper about the SIMPLE IRA payments. It turned out that this was not a contribution from the business but rather Liz’s personal contribution funded through business funds.

Seeking Solutions

This situation posed a dilemma: how should I manage these mixed expenses in QuickBooks? Should I simply categorize personal expenditures as “Owner Draw” or find another approach? I reached out to both Liz and her former assistant for clarification, but my inquiries were met with confusion and a hint of annoyance. It was clear they were accustomed to recording everything in their handwritten ledger and passing it on to their accountant, without ever questioning the methodology.

Understanding the Importance of Separation

As an accountant, it’s critical to recognize that co-mingling personal and business expenses can lead to significant financial inaccuracies and complications down the line. Each dollar spent needs to be appropriately categorized to ensure