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

As a new bookkeeper stepping into the world of QuickBooks, I recently faced a challenging situation that highlighted the complexities of managing business finances, particularly when it comes to co-mingling personal and business expenses. A friend of mine reached out for assistance with her gardening and landscaping business after her assistant/bookkeeper retired. They had been managing their accounts manually for nearly a decade, which presented some unique hurdles when transitioning to digital Accounting.

Upon accepting this support role, I quickly discovered a significant issue: the client, Liz, was using her business account to pay for various personal expenses. These included essential bills such as her mortgage, utilities, gym memberships, and more—a stark contrast to the legitimate business expenses like pest control services and supplies from nurseries.

To give you a clearer picture, here’s a snapshot of their typical monthly expenses recorded:

| Vendor | 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 |

As I began the transition to QuickBooks, it became apparent that many entries, such as the mortgage payments and utility bills, were contributing to a significant co-mingling of funds—an Accounting practice where personal and business transactions are intertwined. The situation is further complicated by the fact that the SIMPLE IRA contributions are not for business purposes, but rather personal contributions made from the business account.

This situation raises an important question: How do you properly account for these mixed expenses in QuickBooks? While I want to suggest that Liz separate her personal expenses from her business account, the challenge lies in the fact that the long-standing practice has been to record everything manually without distinction.

Proposed Solutions to Address Co-Mingling

1. Owner Draws: One potential solution could be to record the personal expenses as “Owner Draws” in QuickBooks, effectively separating those costs from the business operations in the Accounting system. This would acknowledge the withdrawals from the business account without miscategorizing them as legitimate business expenses.

2. **Creating Clear