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

As a finance professional, I recently embarked on a new journey to assist a friend with their transitioning Bookkeeping practices, specifically into QuickBooks. After their long-time assistant/bookkeeper retired, the opportunity arose to help streamline their financial management. However, I quickly discovered that the transition would be more challenging than anticipated, primarily due to a significant co-mingling of personal and business expenses.

The Backstory

My friend, who runs a gardening and landscaping business, had been managing their finances by hand for nearly a decade. While it may have worked for them thus far, the switch to QuickBooks revealed a troubling trend: several personal expenses were being charged directly to their business account.

Upon reviewing past transactions, I identified a bewildering mix of payments, including:

• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Home & Auto Insurance: $3,000
• Ed’s Nursery: $2,000
• Mortgage to Chase Bank: $3,500
• Comcast Cable: $200
• AT&T Phone Bill: $200
• SIMPLE IRA Contribution: $4,000

The legitimate business expenses, such as those for pest control and fertilization, stood in stark contrast to the personal costs like the mortgage, utility bills, and gym memberships—all being funneled through the same financial vein.

Addressing the Situation

It was clear that an underlying issue was at play. Paying for substantial personal expenses from the business account can lead to complex legal and tax implications. When I approached the retiring administrator about the SIMPLE IRA payment, I learned that it was, in fact, Liz’s personal contribution made through business funds, further complicating the scenario.

My pressing question became: how do I appropriately address and account for these transactions in QuickBooks? Should these personal expenses be recorded as “Owner Draws,” or is there a better method of separation?

Seeking Clarity Amid Confusion

As I continued to navigate these waters, it became evident that the owner and the retiring assistant were perplexed by my inquiries. Their longstanding practice of recording everything in a handwritten ledger meant they were not accustomed to scrutinizing the nature of each expense. They would simply hand over their records to an accountant without addressing any co-mingling concerns.

Finding the Right Path Forward

Am I overreacting, or is this a legitimate issue that