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

Recently, I was presented with a challenge that many new bookkeepers might face when transitioning a client from manual record-keeping to a digital Accounting system like QuickBooks. A friend of mine, who has been managing a landscaping business, sought assistance after their long-time bookkeeper retired. Having only used a handwritten ledger for about a decade, they were now looking for a modern solution to their Accounting needs.

Eager to expand my own knowledge and help out, I took on the assignment. However, I quickly realized the complexity of their financial situation far exceeded my initial expectations. As I delved into the records, it became evident that expenses were being inappropriately mixed between business and personal accounts.

The client, Liz, was using her business account for several substantial personal expenses, including mortgage payments, utility bills, IRA contributions, gym memberships, and cable services. While items like pest control and fertilizer purchases are certainly valid business expenses, it was clear that items such as the mortgage and utilities represented a significant co-mingling issue.

Here’s a snapshot of what their monthly expenses looked like:

| Vendor/Service | 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 imported these figures into QuickBooks, I noticed a troubling trend: all expenses were being charged to the same business account without clear delineation. The pest control and nursery expenses could be justified as necessary for the business, but the personal expenses raised serious concerns.

A conversation with the retiring assistant revealed that even the SIMPLE IRA contribution was personal, with Liz contributing from the business account. This left me with a dilemma: how should I address this situation?

Should I simply categorize the personal expenses as “Owner Draw” in QuickBooks? That felt like an insufficient solution, especially since the owner and the retiring bookkeeper appeared perplexed by my inquiries. Their previous method of handling these finances—scribbling everything down in a ledger and passing it off to their accountant—did