Navigating Client Co-Mingling: Solutions for Accounting Personal Expenses in QuickBooks

Recently, I encountered a unique challenge while helping a friend transition from manual Bookkeeping to using QuickBooks. After her long-time bookkeeper retired, she sought assistance to familiarize herself with the software. With a willingness to learn and a bit of enthusiasm, I accepted the task—but soon found myself in unfamiliar territory.

The situation at hand involved a gardening and landscaping business, where personal and business expenses were being managed rather chaotically. My initial review of their financial records revealed a mix of entries that raised significant red flags. For example, the business account was being used not only for legitimate operational costs like pest control and fertilizers but also for personal expenses such as mortgage payments, utility bills, and even gym memberships.

To illustrate, here’s a snapshot of their typical monthly transactions:

• 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

From my perspective, while expenses directly related to the gardening business appear legitimate, the inclusion of personal bills such as the mortgage and utility payments indicated a serious co-mingling issue. One particularly concerning entry was a contribution to the SIMPLE IRA, which the retiring bookkeeper confirmed was a personal contribution made from business funds.

This led me to ponder: How do I effectively address this situation within QuickBooks? Is it enough to categorize the personal expenses as an “Owner Draw,” or should I be looking for a more comprehensive solution?

When I approached the business owner and the retiring bookkeeper for clarification, I was met with a mix of confusion and annoyance. Their long-standing method of maintaining a handwritten ledger seemed to normalize the blending of personal and professional finances, making it difficult for them to understand the implications of such practices.

So, what should I do next?

The First Steps Forward

1. Educate on Best Practices: It’s vital to communicate the importance of keeping personal and business expenses separate to prevent legal and tax complications in the future.

2. Implement a Clear Accounting Structure: While it may not be feasible to undo the