Navigating Client Co-Mingling Issues: A Guide to Accounting for Personal Expenses in QuickBooks

Recently, I embarked on an intriguing journey involving a friend’s transition to QuickBooks after ten years of manual Bookkeeping. My friend’s assistant had retired, leaving behind a mountain of handwritten records for a small gardening and landscaping business. Eager to assist and learn, I took on the challenge, only to find myself confronted with a significant Accounting conundrum.

The Challenge of Co-Mingling Expenses

As I delved into the business’s financials, it became clear that there were considerable personal expenses being paid through the business account. This included everything from mortgage payments and utility bills to contributions to an IRA and gym memberships. As I examined the records, the complexity of the situation began to unfold.

For instance, a typical month in the company’s finances looked something like this:

| Vendor/Expense | 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 |

While many of the expenses listed, such as pest control and fertilizer purchases, are clearly business-related, the inclusion of the mortgage payment, utilities, cable, and personal IRA contributions raised a significant red flag. These entries indicated a worrying trend of co-mingling personal and business funds.

Understanding the Implications

When I inquired about the SIMPLE IRA payment, I learned that it was a personal contribution made from the business account. This raised further questions about maintaining accurate financial records and ensuring compliance with Accounting standards.

What Are the Next Steps?

Facing this situation, I pondered the best course of action. Should I push the client to reorganize their finances and start separating personal and business expenses? Or should I find a way to account for these discrepancies within QuickBooks without causing undue concern?

One practical approach could be to categorize the personal expenses as “Owner Draws” in QuickBooks. This way, they could be distinguished from legitimate business operating costs. However, doing so might not fully address the underlying issue of financial clarity for the business owner.