Navigating Client Co-Mingling in QuickBooks: A Case Study

Recently, I was presented with a unique challenge that many Accounting professionals might face when helping a small business transition to QuickBooks. A friend, who owns a landscaping and gardening company, sought assistance after her long-time bookkeeper retired. Having had no experience with QuickBooks myself, I took on the task with the hope of learning and assisting along the way.

Upon diving into the records, I quickly discovered a significant issue: the business and personal expenses were mixed together in a way that created confusion. The owner, Liz, had been using her business account to pay for various personal expenses, which included her mortgage, utilities, gym memberships, and more. This scenario raised a red flag for me, as it indicates a co-mingling of funds, which can lead to Accounting challenges and tax complications.

Let’s take a closer look at a typical month’s transactions that I encountered:

• 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 expenses related to pest control, fertilizers, and nurseries clearly align with business operations, the mortgage, cable, phone bills, and insurance payments seemed to fundamentally mix personal and business finances. Even more concerning was the SIMPLE IRA contribution, which was, according to the retiring admin, a personal payment being drawn from the business account.

This situation presented me with a dilemma: what approach should I take to properly account for these mixed transactions in QuickBooks? Simply suggesting that Liz separate her personal expenses from her business account could be met with resistance, as she and her retiring assistant appeared perplexed and somewhat dismissive when I raised the issue.

Finding a Solution

So, what steps can be taken to rectify this dilemma?

1. Clarify Ownership Draws: For the personal expenses paid through the business account, I recommend classifying these transactions as “Owner Draws” in QuickBooks. This recognition will help keep the business financials separate from Liz’s personal expenditure and clarify her financial reporting.

2. Educate the Client: It is