Navigating Client Co-Mingling Issues in QuickBooks: A Guide for Accountants

When taking on new clients as an accountant, you might encounter some unexpected challenges. Recently, a colleague sought assistance with transitioning to QuickBooks after their long-serving bookkeeper retired. They had previously managed their books manually for over a decade, and while stepping into this new role seemed like an exciting opportunity, it quickly became clear that the situation was more complex than expected.

The client, Liz, runs a gardening and landscaping business, but there seems to be significant confusion regarding financial boundaries. Upon reviewing her business accounts, it became evident that personal expenses were being charged to her business account, raising a serious co-mingling issue. Expenses like mortgage payments, utility bills, gym memberships, and IRA contributions are all being handled through the same account as her business expenses.

The Breakdown of Expenses

For context, here’s a snapshot of the recent transactions from Liz’s business account:

| 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 the charges related to pest control, fertilizing, and nursery supplies are clearly linked to the business, there are obviously major concerns with the mortgage, cable, phone, and personal insurance payments.

Addressing the Co-Mingling Issue

Despite my attempts to clarify the situation with Liz and the retiring assistant, I faced resistance and confusion. They were accustomed to their handwritten ledger system, where everything was mixed together, and had simply handed it over to their accountant without much scrutiny.

With all those personal expenses flowing through her business account, I found myself at a crossroads. How should I handle this in QuickBooks? One option I considered was categorizing these personal expenses as “Owner Draws,” but that’s not a permanent solution to the root of the problem.

Finding a Solution

This situation raises a couple of critical questions: Is this co-mingling a significant issue, and what is the best way to rectify it within QuickBooks?

First, the answer is