Client Co-Mingling Issue – how to account for these “expenses” in QuickBooks?

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

Transitioning to digital Bookkeeping can be a tricky endeavor, particularly for those who have relied on traditional methods for many years. Recently, I stepped into the world of QuickBooks to assist a friend whose small gardening and landscaping business was in need of financial organization after their bookkeeper retired. While eager to help, I quickly discovered a significant challenge: the co-mingling of personal and business expenses.

Understanding the Issue

The client, Liz, has been operating her business using a combination of manual record-keeping and an assortment of unverified expenses managed through a single business bank account. After taking a closer look at the entries, I found that personal expenditures—including mortgage payments, utilities, gym memberships, and even IRA contributions—were being recorded alongside legitimate business expenses for services like pest control and fertilizer.

For context, here’s a snapshot of what the business’s monthly expenses looked like:

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

While the first three items certainly qualify as business expenses, other entries, such as mortgage and utility payments, clearly indicate a blending of personal and business finances—a major co-mingling issue that must be addressed for accurate Accounting.

The Challenge Ahead

As I sifted through the records in QuickBooks, it became evident that many of these personal expenses were being processed through the business account, leading to potential complexities in financial reporting and tax filings. Particularly concerning was the SIMPLE IRA; I learned that it was Liz’s personal contribution, which further complicated the situation.

In conversations with both Liz and the retiring assistant, I noticed a degree of confusion and annoyance regarding my inquiries into these expenses. They had grown accustomed to maintaining their accounts in a handwritten ledger and subsequently passing everything to their accountant, seemingly oblivious to the implications of their practices.

Finding a Solution

Given the circumstances, I’m faced with a few options regarding how to proceed. One possible solution is to categorize these personal expenditures as “Owner Draws” in QuickBooks. This method recognizes that