Navigating Client Co-Mingling Issues: Accounting for Personal Expenses in QuickBooks

In the world of small business Accounting, one challenge that often arises is the co-mingling of personal and business expenses. Recently, I was introduced to a situation that encapsulates this issue perfectly. A friend reached out to me for assistance with transitioning a gardening and landscaping business, operated by a client named Liz, from a handwritten ledger to QuickBooks. With her assistant/bookkeeper having retired, Liz’s financial records were in need of some serious organization—something I naively thought I could handle.

Upon diving into the financials, I quickly discovered that I had bitten off more than I could chew. The records reflected an alarming trend: Liz was using her business account to cover a variety of personal expenses, including her mortgage, utilities, gym memberships, and even contributions to her retirement plan. This raised a red flag for me regarding the proper Accounting practices that need to be established.

Consider the following breakdown of a typical month’s transactions:

• 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

From this list, it’s clear that while the payments to pest control, fertilizer suppliers, and plant nurseries are legitimate business expenses, the payments towards personal bills, such as the home mortgage and utilities, indicate that co-mingling is taking place. Even the SIMPLE IRA contribution, which I initially assumed was an employer contribution, turned out to be a personal contribution made with business funds.

Faced with this dilemma, I pondered my options. Should I request that Liz separate her personal expenses from the business account? The thought seemed daunting, especially given the resistance I experienced when I raised these questions with both the outgoing assistant and Liz. They appeared bewildered as to why I was questioning their long-standing practice of blending personal and business transactions.

So where do I go from here? One potential solution that came to mind is to categorize these personal expenses as “Owner Draws” in QuickBooks. This would allow me to differentiate between legitimate business expenses and those that are personal in nature. However