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

When taking on a new Accounting role, you may find yourself confronted with challenges that can feel overwhelming, especially if the previous Bookkeeping methods were outdated. This was precisely the case for a client, Liz, who recently transitioned from a manual Bookkeeping system to QuickBooks after her long-time bookkeeper retired. The task seemed straightforward until I discovered significant co-mingling of personal and business expenses that needed addressing.

Understanding Co-Mingling of Funds

As I began reviewing Liz’s records, it became clear that her business account was handling a blend of legitimate business expenses alongside substantial personal costs. This included essential services like mortgage payments, utilities, personal retirement contributions, and even gym memberships. To illustrate, here’s a snapshot of entries from a typical month:

• Business-Related Expenses:
• Bob’s Pest Control: $1000
• Jill’s Fertilizing: $600

• Ed’s Nursery: $2000

• Personal Expenses:

• Chase Bank (Mortgage): $3500
• Comcast: $200
• AT&T: $200
• SIMPLE IRA: $4000

It was clear that while transactions related to pest control and fertilization were legitimate business expenses, charges for the mortgage and cable services posed significant questions about the integrity of financial records.

Tackling the Issue Head-On

With such a mix of expenditures appearing in the same business account, I needed a strategy to address this situation effectively. One of the common practice queries is whether to redress these personal expenses as “Owner Draws” in QuickBooks. However, this approach raises its own set of concerns regarding financial reporting and accountability.

The previous bookkeeper’s method of keeping everything in a handwritten ledger left major gaps in understanding how to properly segregate business and personal expenses. When I sought clarification from both Liz and her retiring assistant, I sensed confusion about why it mattered; they were accustomed to a simpler way of recording transactions—one that may have overlooked critical Accounting principles.

Creating a Path Forward

So, what’s the appropriate course of action? Here are a few steps to address the co-mingling of funds effectively:

1. Establish Clear Separation: Advise Liz to open a separate personal account to manage her non-business-related expenses. This will help maintain clarity and accuracy moving forward.

2. **Record Personal Expenses Appropr