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

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

When stepping into the world of QuickBooks, especially after years of traditional Bookkeeping methods, it can feel overwhelming—especially when you discover underlying issues with financial management. Recently, I took on a project to assist a local gardening and landscaping business with their transition to QuickBooks after their long-time bookkeeper retired. The journey has been enlightening, albeit a bit daunting.

Upon reviewing their financial records, I quickly stumbled upon a significant co-mingling issue that needed addressing. The business owner, Liz, has been mixing personal expenses with business transactions, which poses serious implications for Accounting and tax reporting.

To give you a clearer picture, here are some typical monthly expenses I encountered during my review:

• 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 spending on pest control, fertilization, and gardening supplies clearly qualifies as legitimate business expenses, items like mortgage payments, utilities, cable services, and even personal IRA contributions were being paid straight from the business account. This raises a red flag regarding financial discipline and compliance.

What To Do When Personal and Business Expenses Collide

The first step in addressing this issue is understanding how to accurately reflect these transactions in QuickBooks. The question arises: How should I categorize these personal expenses, especially when the business has been maintaining a handwritten ledger without much differentiation between business and personal spending?

Here are a few strategies to consider:

1. Owner Draws: Non-business-related expenses can be categorized as “Owner Draws.” This reflects that the money taken from the business account is not for business purposes, which can help clarify the financial records.

2. Regular Communication: Engaging in open discussions with Liz and her retiring assistant about the importance of separating personal and business expenses will be crucial. They may not fully understand the long-term impacts of their current methods, so helping them recognize the potential risks could be beneficial.

3. Implementing Financial Best Practices: Encouraging Liz to set up separate accounts for personal and business