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

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

In today’s digital era, many businesses are transitioning from traditional Bookkeeping methods to more efficient platforms like QuickBooks. However, adapting to this change can present unexpected challenges. Recently, I had the opportunity to assist a gardening and landscaping company that had relied solely on handwritten records for the past decade. With the retirement of their assistant/bookkeeper, they were eager to modernize their Accounting system.

Upon stepping into this role, I quickly encountered a significant issue: the business account was being used to pay for various personal expenses of the owner, Liz. Expenses like mortgage payments, utility bills, IRA contributions, gym memberships, and cable services were all being charged to the company’s finances. This practice not only complicates Bookkeeping but also raises major concerns regarding financial integrity and compliance.

Understanding the Co-Mingling Challenge

For context, here’s an overview of a typical month’s expenses recorded in their Bookkeeping:

• 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 (Personal Contribution): $4,000

While it is clear that expenses related to pest control, fertilization, and plant purchases are valid business costs, the payments for Liz’s mortgage, cable, phone service, and personal insurance represent a significant co-mingling of personal and business finances.

Addressing the Issue in QuickBooks

As I began to input these transactions into QuickBooks, it became apparent that the intertwining of personal and business expenses needed urgent attention. One of the primary questions I faced was how to account for these personal expenditures appropriately. Should they be classified as ‘Owner Draws’ in QuickBooks?

In this scenario, it’s essential to separate personal and business finances to maintain accurate Accounting records. Here are a few steps to consider:

1. Open Communication: Discuss the importance of separating business and personal expenses with Liz. Address any confusion or annoyance sensitively, as they may not fully understand the implications of co-mingling finances.

2. Create Distinct Accounts: Advise them to establish a separate personal