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

As a bookkeeper, stepping into a new role can often feel like diving into uncharted waters, especially when there’s a mix-up in managing personal and business finances. Recently, I accepted a position to assist a friend’s landscaping business, which had been relying on hand-written ledgers for over a decade. With the transition to QuickBooks, I quickly discovered a tangled web of co-mingling expenses that needed unraveling.

The Challenge

Upon reviewing the records, it became clear that the owner, Liz, was using the business account to pay for various substantial personal expenses. These included noticeable liabilities such as mortgage payments, utility bills, IRA contributions, and even gym memberships—all of which should generally be kept separate from business finances.

For context, 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 |
| 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 |

The legitimate business expenses included pest control and fertilizing services; however, the mortgage, telecommunications, and insurance payments raised red flags. Upon clarification, it turned out that the SIMPLE IRA contribution was not a business expense but Liz’s personal investment made through the company’s account.

The Quandary

Faced with this situation, I found myself questioning the best approach to remedy the co-mingling of funds. Simply instructing Liz to segregate her finances seemed impractical, as her long-standing method had been to record everything in a ledger before passing it off to her accountant.

This led me to ponder whether I should categorize these personal expenditures as an “Owner Draw” in QuickBooks. However, this decision left me feeling uneasy. After all, it’s crucial to maintain clear boundaries between business and personal finances for accurate Accounting and tax purposes.

Seeking Solutions

As I navigated these discussions with Liz and her retiring assistant, I encountered confusion and, frankly, frustration from them. They were accustomed to their habitual record-keeping without understanding the implications