Navigating Client Co-Mingling Issues: How to Properly Account for Personal Expenses in QuickBooks

As a professional who recently ventured into the world of QuickBooks, I encountered a significant challenge while assisting a new client in transitioning from manual Bookkeeping to a digital platform. My journey began when a friend of mine sought help for her gardening and landscaping business after her long-time bookkeeper retired. This is a common scenario for many small business owners who have relied on traditional methods for years, but what happened next presented some unexpected hurdles.

Upon taking the role, I quickly realized that the business account was being used for a mix of legitimate business transactions and personal expenses. The client, Liz, had been using the same account to cover a variety of significant purchases, including her mortgage, utility bills, IRA contributions, gym memberships, and cable bills. This blend of personal and business expenses posed a serious co-mingling issue, which I knew needed to be addressed swiftly.

To illustrate, consider this snapshot of a typical month’s transactions:

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

It was evident that while many expenses (like the pest control and nursery bills) were legitimate business costs, items like the mortgage, utility bills, and personal IRA contributions were clearly for Liz’s personal use. In importing these transactions into QuickBooks, it became glaringly obvious how much co-mingling was occurring.

One of the most perplexing findings was the SIMPLE IRA contribution, which was revealed to be Liz’s personal contribution rather than an employer-sponsored one, further complicating the Accounting process.

Now, the pressing question became: how should I address this situation in QuickBooks? Should I simply categorize the personal expenses as “Owner Draws”? Or, was there a better way to separate these transactions?

Despite my efforts to engage Liz and the retiring bookkeeper in meaningful discussions about these concerns, I faced resistance. Their years of relying on a handwritten ledger meant they were accustomed to a more simplistic approach to Bookkeeping, simply passing everything along to their accountant without questioning the details.

This experience has made me reflect on the importance of maintaining a clear boundary between personal and business expenditures. Mixing