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

Recently, I stumbled upon a rather challenging situation while assisting a friend who needed help transitioning their Bookkeeping to QuickBooks after their long-time assistant retired. The client, let’s call her Liz, had been managing her gardening and landscaping business using a handwritten ledger for the last decade. When I was brought on board, I was excited to dive into QuickBooks and learn the ropes, but I quickly realized the complexity of Liz’s financial practices.

As I reviewed the records, it became evident that Liz was processing a substantial amount of personal expenses through her business account. The range of transactions included significant payments related to her personal life, such as mortgage payments, utility bills, contributions to her IRA, and even gym memberships. Here’s an overview of the kinds of transactions 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

Upon analyzing these entries, it became clear that while some transactions, like pest control and nursery expenses, were legitimate business costs, many others, particularly the mortgage and cable bills, indicated a significant issue of co-mingling personal and business funds.

In discussing the SIMPLE IRA with the retiring admin, I learned that the contributions were personal—yet they too were being paid from the business account. This raised a red flag in terms of proper Accounting practices.

As I pondered this co-mingling dilemma, I found myself unsure of the best approach to take. Should I categorize the personal expenses as “Owner Draws” in QuickBooks? Or would that complicate matters further? Unfortunately, both the owner and the former assistant seemed perplexed by my inquiries, likely due to their long-standing, simplified method of recording everything by hand and then passing it off to their accountant for sorting.

This situation left me with several pressing questions: Am I overreacting to what appears to be a typical small business practice? Is this personal expense co-mingling a legitimate concern? If so, how can I effectively account for these transactions within QuickBooks?

Moving Forward: Suggested Strategies

If you find yourself in a similar situation, consider the following steps:

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