Navigating Client Co-Mingling: Proper Expense Management in QuickBooks

In the world of small business Accounting, clarity and separation of personal and business expenses is essential. Recently, I encountered a challenging situation while assisting a new client in transitioning from handwritten Bookkeeping to QuickBooks. This experience offered me valuable insights into how co-mingling of funds can complicate financial management and create confusion.

The Scenario

A friend reached out to me after her bookkeeper retired, seeking guidance in using QuickBooks for a gardening and landscaping business. Having little prior exposure to this software, I was eager to tackle the challenge. However, upon reviewing the company’s financial transactions, it quickly became apparent that the situation was more complex than I anticipated.

The business owner, Liz, has been paying substantial personal expenses from her business account. Examples of these expenses included her mortgage, utility bills, IRA contributions, and even gym memberships. Here’s a snapshot of a typical month’s transactions:

• 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 transactions related to pest control and gardening supplies are legitimate business expenses, items like the mortgage, cable, and phone bills raised a red flag. Additionally, I learned that Liz was contributing to her SIMPLE IRA using funds from her business account, a practice that further muddied the waters of her financial reporting.

Understanding Co-Mingling

Co-mingling occurs when personal and business finances are mixed together, leading to potential tax liabilities and Accounting errors. In Liz’s case, it created a significant challenge in determining which expenses were truly related to the business.

When I attempted to discuss these discrepancies with Liz and her retired administrator, they seemed puzzled by my inquiries. They’ve grown accustomed to recording everything in a handwritten ledger and relying on an accountant to sort out the details during tax season. However, it is crucial to address these co-mingling issues sooner rather than later.

Solutions for Accurate Accounting in QuickBooks

So, how should I handle this situation? Here are a few steps I believe can help rectify the issue:

1. Create Separate Accounts: The most effective way to avoid co-mingling is to establish a separate