Navigating Client Co-Mingling Issues in QuickBooks: A Comprehensive Guide

Recently, I encountered a rather perplexing situation while assisting a client with their transition to QuickBooks. My client, Liz, had relied on a manual Bookkeeping system for over a decade before her assistant/bookkeeper retired. As I stepped in to help her digitize her records, it became abundantly clear that I was facing a significant challenge — one that revolves around co-mingling business and personal expenses.

The Background

Liz runs a gardening and landscaping business, and like many small business owners, she has been keeping her financial records through handwritten ledgers. However, this method has led to some concerning overlaps. Upon reviewing her transactions, I found a mixture of legitimate business expenses intermingled with numerous personal charges.

A Snapshot of the Financial Landscape

For example, a typical month might reveal payments such as:

• 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

These entries indicate a mix of valid business expenditures alongside major personal liabilities, such as Liz’s mortgage, cable, and phone bills.

The Challenge Ahead

As I sifted through the records, it became apparent that a co-mingling issue was at play. While payments to pest control and gardening supplies are clear business expenses, items related to personal finances should not be recorded in a business account. Alarmingly, even contributions to Liz’s SIMPLE IRA were being processed as business transactions, despite being personal contributions.

Trying to clarify the situation with both Liz and her retiring administrator proved to be challenging. They seemed perplexed and somewhat annoyed by my questions, perhaps due to their long-standing practice of simply recording everything together before handing it over to their accountant.

Strategies for Resolution

So, how do I address this co-mingling dilemma while transitioning Liz’s records to QuickBooks? Here are a few strategies I believe could be beneficial:

1. Categorization of Expenses: In QuickBooks, it’s essential to categorize expenses accurately. I might consider treating personal expenses as “Owner Draws,” keeping them separate from legitimate business costs, and ensuring they don’t appear in profit and loss statements.

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