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

Navigating Co-Mingling Issues in QuickBooks: A Guide for New Bookkeepers

When stepping into the world of Bookkeeping, especially in a setting where clients have traditionally operated outside of digital platforms, one may quickly find themselves in uncharted territory. This is precisely the challenge I faced when I took on a role to help a friend transition her landscaping business into QuickBooks after her long-time assistant retired. While I embraced the chance to learn, I soon discovered complexities that would test my knowledge.

The business in question, let’s call it Liz’s Landscaping, had been managing its financial records manually for over a decade, relying on a handwritten ledger to track income and expenses. As I delved into their records, it became clear that the financial practices in place were a mix of personal and business transactions. This raised a significant concern: co-mingling of funds.

Understanding Co-Mingling of Funds

In this particular case, the business account was frequently used for various personal expenses, including:

• Mortgage payments
• Utility bills
• IRA contributions
• Gym memberships
• And more.

While services such as pest control and fertilizer supplies are legitimate business expenses, payments for personal items like mortgage or cable bills demonstrate a clear co-mingling issue that can complicate both Accounting and taxation.

For instance, in reviewing the financial transactions, I encountered entries such as:

• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Home & Auto Insurance: $3,000
• Chase Bank (Mortgage): $3,500

This mix makes it challenging to delineate between personal and business expenses, especially when it came to contributions to Liz’s SIMPLE IRA, which turned out to be a personal contribution mistakenly paid from the business funds.

What Should You Do?

As a new bookkeeper facing this scenario, I found myself at a crossroads. Should I confront the client about the need to separate these expenses? Or is there a better way to account for these transactions within QuickBooks?

Based on industry best practices, here are some steps you can consider when faced with a similar situation:

1. Communicate the Issue: Have an open conversation with the business owner about the importance of maintaining clear boundaries between personal and business finances. Stress that co-mingling can lead to complications, especially at tax time.

2. Classify Transactions Appropriately: For transactions