Navigating Client Co-Mingling Issues in QuickBooks: A Case Study

Recently, I found myself delving into an Accounting challenge that offered both a steep learning curve and a valuable lesson. A friend of mine needed assistance with a gardening and landscaping business after their long-time bookkeeper retired. They had managed their finances by hand for over a decade, but now it was time to transition to QuickBooks. Intrigued by the opportunity to learn, I stepped in.

My initial excitement quickly turned to concern as I deciphered the state of their finances. It became evident that the business owner, Liz, was using her business account to pay for various personal expenses. This included major costs such as mortgage payments, utility bills, retirement contributions, and even gym memberships. Their financial records, which had previously been maintained manually, reflected an amalgamation of both business and personal expenditures.

To give you an idea of their financial landscape, here is a sample of their monthly transactions:

| Vendor/Description | 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 |

As I imported these records into QuickBooks, it was clear that while some payments—like those for pest control and fertilizers—were legitimate business expenses, many were distinctly personal. Paying for a home mortgage, utilities, or even an individual retirement account (IRA) using business funds raised serious co-mingling issues.

Upon questioning the former admin about the SIMPLE IRA contribution, I learned it was, in fact, Liz’s personal contribution, yet again processed through the business account. This raised a significant red flag in terms of proper Accounting practices.

Faced with this reality, I found myself at a crossroads: how should I handle these intertwined expenses in QuickBooks? Simply requesting that Liz separate her personal and business expenses was not a feasible option, as the transition had already begun causing confusion and frustration.

When it comes to categorizing these expenses, one approach I considered was recording the personal expenditures as “Owner Draws” in QuickBooks. However, I am aware