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

When it comes to Accounting, especially for small businesses, little can be more challenging than managing personal and business finances. A recent encounter with a client seeking QuickBooks assistance highlighted this common dilemma, particularly regarding co-mingling of funds.

My journey began when a friend reached out for support after her assistant/bookkeeper retired. They had been maintaining their financial records manually for the past decade, and my friend thought that transitioning to QuickBooks might simplify matters. Eager to learn and help, I took on the project, only to find myself confronted with a significant challenge.

The client, a landscaping and gardening business owner named Liz, had been using her business account to pay for a variety of personal expenses. These included her mortgage, utilities, gym memberships, cable bills, and even contributions to her IRA. In reviewing the financial records, I noticed a mix of business transactions alongside significant personal costs, all drawn from the same account.

To illustrate, here’s a snapshot of what a typical month’s expenses looked like:

| Vendor | Amount |
|———————–|———|
| Bob’s Pest Control | $1,000 |
| Jill’s Fertilizing | $600 |
| Home & Auto Insurance | $3,000 |
| Ed’s Nursery | $2,000 |
| Chase Bank (Mortgage) | $3,500 |
| Comcast | $200 |
| AT&T | $200 |
| SIMPLE IRA | $4,000 |

While expenses like pest control, fertilizer, and supplies for the nursery are clearly business-related, payments for personal utilities and the IRA contributions raised flags. I learned that Liz’s contribution to her IRA was classified incorrectly, being recorded as a business expense rather than an owner draw.

This situation left me pondering the best approach to address these discrepancies. Should I demand that the client distinguish between personal and business expenses? Or can I manage this directly within QuickBooks? My instinct tells me that treating personal expenses as “Owner Draws” might be the simplest way forward, but this approach isn’t without complications.

Attempting to clarify these issues with Liz and her retiring assistant seemed to fall flat. They appeared confused and slightly annoyed, having grown accustomed to their handwritten ledger system that they later passed to their accountant for review and adjustments.

So, what’s the takeaway? As daunting as this co