Tackling Client Co-Mingling Issues in QuickBooks: A Practical Approach

Navigating the world of Bookkeeping can be challenging, especially when stepping into the role of Bookkeeping for a business that has traditionally relied on handwritten records. Recently, I took on a project to help a friend—the owner of a gardening and landscaping business—transition from manual Bookkeeping into QuickBooks. While I was eager to learn and lend a hand, it quickly became apparent that the situation was more complicated than I anticipated.

Uncovering Co-Mingling of Personal and Business Expenses

As I delved into their records, I discovered a significant issue: the client, Liz, had been using the business’s bank account to cover numerous personal expenses. This included payments for essentials like her mortgage, utilities, IRA contributions, gym memberships, and cable bills, leaving me with a clear concern about the mixing of personal and business finances.

To illustrate, here’s a snapshot 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 Contribution: $4,000

While it’s easy to identify the legitimate business expenses, such as pest control and fertilizer purchases, the payments for personal items like the home mortgage and utility bills clearly indicate a co-mingling issue.

Seeking Clarity in a Traditional System

During my attempts to clarify the situation, I spoke with the retiring administrative assistant and Liz. However, they seemed puzzled or slightly irritated by my inquiries. After years of hand-writing their transactions and subsequently passing them off to an accountant, they didn’t see the need for reevaluation. Unfortunately, this led to a challenge in distinguishing between personal and business-related financial activities.

Finding a Solution: Owner Draws or Separate Accounts?

Faced with this complicated landscape, I began to wonder how best to address these discrepancies within QuickBooks. Is the best course of action to classify all personal expenses as “Owner Draws”? This option could provide a clear record of funds taken from the business for personal use.

Alternatively, I pondered whether it might be prudent to recommend separating business and personal finances entirely to