Navigating Client Co-Mingling Challenges in QuickBooks: A Guide

Recently, I had the opportunity to assist a friend who was seeking guidance on transitioning from manual Bookkeeping to QuickBooks for their gardening and landscaping business. After their long-time assistant retired, I thought, why not step in and expand my knowledge of QuickBooks? However, I quickly realized I had underestimated the complexities of the situation.

The business owner, Liz, had been using the company account for a variety of personal expenses, including significant items like mortgage payments, utility bills, IRA contributions, gym memberships, and cable services. For the past decade, Liz and her assistant have meticulously recorded all transactions by hand, but now it was time to modernize.

In examining the month’s transactions, a typical record was filled with various business-related expenses alongside personal costs. For instance:

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

It became glaringly clear that these personal expenses were intermixed with legitimate business transactions, raising serious concerns about co-mingling of funds. While items like pest control, fertilizers, and supplies from the nursery are justifiable business costs, expenses related to personal property and services such as home mortgages and utility bills certainly seem inappropriate for a business account.

In my effort to clarify these transactions, I discovered that the SIMPLE IRA contribution was not an employer-funded expense, but rather a personal contribution made directly from the business account. This raised an important question: how do I properly account for these mixed transactions in QuickBooks?

Despite my attempts to discuss these issues with Liz and the retiring assistant, they seemed perplexed and somewhat annoyed by my inquiries. After years of handling their records manually, they were accustomed to passing everything to their accountant for further processing without much analysis.

So what’s the best strategy moving forward? Should I categorize personal expenses as “Owner Draws” in QuickBooks, or is there a more effective approach to tackle this co-mingling dilemma?

The key takeaway here is to emphasize the importance of keeping business and personal finances distinctly separate. This not only