Navigating Client Co-Mingling Issues in QuickBooks: A Challenges and Solutions

Recently, I had the opportunity to step in as an interim bookkeeper for a friend whose assistant had just retired. Her previous record-keeping method had relied entirely on handwritten ledgers for about a decade, and now she was eager to transition to QuickBooks.

With ambition and curiosity, I took on the role, but I swiftly realized the complexity of the situation I had entered. The client’s financial practices presented a significant challenge – they were mixing personal expenses with business transactions in a way that could spell trouble down the line.

The Challenge

The client, Liz, operated a gardening and landscaping business, and her business checking account was being used for a variety of personal expenses. The nature of these expenditures raised eyebrows:

• Business-Related Expenses:
• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600

• Ed’s Nursery: $2,000

• Personal Expenses:

• Chase Bank (Mortgage): $3,500
• Comcast (Cable): $200
• AT&T (Phone): $200
• SIMPLE IRA Contribution: $4,000 (personal)

The problem is quite clear: legitimate business expenses mingling with significant personal outlays such as the mortgage, cable, and even contributions to her retirement plan, all from the same account.

The Implications

When I sought clarity from the retiring administrative staff, they revealed that the SIMPLE IRA was not a contribution from the business but rather Liz’s personal contribution, further complicating matters. The challenge I faced was twofold – how to reconcile these transactions in QuickBooks and how to communicate the necessity of separating personal and business finances to Liz in a way that she would understand.

Attempts to engage Liz about this issue were met with confusion and frustration. She and her former assistant had grown accustomed to simply recording everything in their ledger and turning it over to their accountant without raising any questions.

Finding a Solution

So, what’s the best way to address these co-mingling issues in QuickBooks?

1. Clarification and Separation: Although it may be a daunting task, it would be prudent to encourage Liz to establish clearer boundaries between personal and business finances. Ideally, all personal expenses should be recorded separately to avoid complications down the road.

2. Using Owner Draws: For QuickBooks