Client Co-Mingling Issue – how to account for these “expenses” in QuickBooks?

Title: Managing Co-Mingling Expenses in QuickBooks: A Guide for Business Owners

Navigating QuickBooks can be a daunting task, especially when stepping into the role of a bookkeeper for a business that has relied on a handwritten ledger for years. Recently, I took on such a challenge when a friend of mine sought help after their long-time bookkeeper retired. Little did I know that I was about to dive into a complex situation involving co-mingled expenses.

The business in question is a landscaping company, and upon reviewing the records, a concerning pattern emerged: personal expenses were being paid from the business account. Items like mortgage payments, utility bills, gym memberships, and personal IRA contributions were included alongside legitimate business expenses such as pest control and landscaping supplies.

Here’s a snapshot of a typical month’s expenses for reference:

| 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 it’s clear that the expenses related to pest control and fertilizing are business-related, the inclusion of items like the mortgage, cable, and phone bills raises a red flag concerning co-mingling. Not only does this muddle the financial picture, but it also poses potential legal and tax complications.

When I inquired about a specific IRA contribution, I learned that it was a personal one, made from business funds — an even larger co-mingling concern. This prompted my need for clarity on how to manage and classify these transactions in QuickBooks.

What Can Be Done?

So, what approach should one take in handling these mixed transactions? Here are a few steps to consider:

1. Separate Business and Personal Expenses: The ideal solution is to have the business owner maintain separate accounts for business and personal finances. This will provide a cleaner Accounting process and help in accurate reporting at tax time.

2. Identify Owner Draws: For the time being, any personal expenses paid from the business account should be recorded as “Owner Draws.” This categorization will clarify which funds are being used for