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

Transitioning to a digital Bookkeeping system can be challenging, especially when you encounter complex situations like co-mingling of personal and business expenses. Recently, I took on a project to help a friend’s gardening and landscaping business shift from manual record-keeping to QuickBooks after their bookkeeper retired. Little did I know the complications I would face in the process.

The Situation

The client, Liz, has been managing her business’s finances alongside her personal expenses using a handwritten ledger for over a decade. While this method has served them for a long time, it has now created a significant problem. As I began inputting records into QuickBooks, I discovered that various personal expenditures, including mortgage payments, utility bills, IRA contributions, gym memberships, and more, were being charged to the business account.

To illustrate, here’s a typical snapshot of their monthly expenses:

| Vendor | Amount |
|——————————–|—————-|
| 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 |

As I examined these entries in QuickBooks, it became painfully evident that legitimate business expenses intermingle with personal ones, which not only complicates Accounting but could also lead to potential tax issues down the line.

Identifying Co-Mingling Issues

Co-mingling occurs when personal and business expenses are mixed in a way that can lead to confusion and misrepresentation of financial health. In Liz’s case, while payments made to vendors like pest control or fertilizers clearly represent business expenditures, payments for personal items such as mortgage, phone bills, and even IRA contributions raise a red flag.

In particular, it was revealed that the SIMPLE IRA entries were Liz’s personal contributions, erroneously drawn from business funds rather than being accounted for separately.

Addressing the Problem

The challenge I face is how to properly categorize and account for these mixed expenses in QuickBooks. Here are some approaches to consider:

1. Separate Personal from Business Expenses: Encourage Liz to maintain separate accounts for personal and