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

Recently, I embarked on an unexpected journey into the world of QuickBooks after a friend sought assistance for her gardening and landscaping business. With a decade of hand-written Bookkeeping under her belt, she needed help transitioning to a more efficient system following her assistant’s retirement. I decided to step in, thinking it would be a great opportunity to learn QuickBooks, but I soon found myself in over my head.

Upon diving into the financial records, I discovered a significant co-mingling issue that raised red flags. It seemed that the owner, Liz, was using her business account to pay for a variety of personal expenses—think mortgage payments, utility bills, IRA contributions, gym memberships, and more.

The Expense Breakdown

The business had a range of transactions that included typical expenses, such as:

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

While the first three items appear to be legitimate business expenses, the latter transactions related to personal living expenses raise serious concerns about financial integrity and proper Accounting practices.

The Realization

As I imported these records into QuickBooks, it became increasingly clear that personal and business finances were dangerously intertwined. For instance, the assistance I received from the retiring admin regarding the SIMPLE IRA revealed that Liz was making personal contributions from the business account—an issue I knew needed addressing.

Seeking Clarity

In my attempts to discuss these concerns with Liz and the retiring admin, I was met with confusion and a hint of annoyance. They seemed unfamiliar with the implications of separating personal and business expenses, as their traditional method involved simply transferring everything to their accountant at year-end.

Strategies for Resolution

Now, you might wonder—what’s the appropriate course of action to address these issues within QuickBooks? Should I categorize these personal expenses as “Owner Draws,” or is there a more efficient method to manage this co-mingling of funds?

Although it’s tempting to overlook the problem or simply track these expenses as draws, maintaining clear boundaries between personal and business finances is not just good practice; it’s essential for accurate reporting and tax purposes