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

Recently, I encountered an intriguing situation while assisting a friend who owns a gardening and landscaping business. After her long-time assistant/bookkeeper retired, she sought help to migrate her financial records to QuickBooks after relying on a hand-written ledger for nearly a decade. Having limited experience with QuickBooks myself, I gladly accepted the challenge, only to realize I had bit off more than I could chew.

Upon delving into the financial records, I discovered that the owner, Liz, has been using the business account to cover significant personal expenses. These expenses included her mortgage, utility bills, IRA contributions, gym memberships, and cable services, among others. While some expenses such as pest control, fertilization, and nursery supplies clearly relate to business operations, the mingling of personal and professional finances raised a red flag regarding proper Accounting practices.

Here’s a closer look at how the accounts were being managed:

• Business Expenses:
• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600

• Ed’s Nursery: $2,000

• Personal Expenses:

• Chase Bank (Mortgage): $3,500
• Comcast: $200
• AT&T: $200
• SIMPLE IRA (personal contribution): $4,000
• Insurance Company (Home & Auto): $3,000

As I started to integrate these records into QuickBooks, I noticed that a substantial amount of personal expenses were being deducted from the same business account dedicated to legitimate business costs. This combination of personal and professional transactions not only muddles the financial clarity but could also lead to significant complications during tax season.

Concerned about how to proceed, I reached out to the retiring assistant for clarification on whether the SIMPLE IRA payment was an employer contribution. She clarified that it was actually Liz’s personal contribution paid from the business funds.

This situation left me pondering my next steps. Should I insist that Liz untangle these expenses and maintain a stricter separation between her personal and business finances? Alternatively, would it be more appropriate to categorize these personal expenses as “Owner Draws” within QuickBooks?

I’ve attempted to address these issues with Liz and her former assistant, but they appeared puzzled by my inquiries, accustomed as they are to the old method of simply recording everything and passing it to their accountant for review.

This raises several questions