Navigating Client Co-Mingling Issues in QuickBooks: A Quick Guide

In a recent case, I found myself stepping into the role of a bookkeeper for a local gardening and landscaping business following the retirement of the owner’s assistant. Having no prior experience with QuickBooks, I was eager to dive in and learn. However, I quickly discovered that the financial record-keeping wasn’t as straightforward as I had anticipated.

The owner, Liz, had been using a manual ledger for the past decade, recording all transactions by hand. While this method worked previously, it became evident that there were significant issues when I started transitioning their records to QuickBooks.

The Problem: Co-Mingling of Personal and Business Expenses

Upon reviewing the transactions, I noticed a concerning pattern: Liz was using the business account to pay for various personal expenses. The list included items like mortgage payments, utility bills, personal IRA contributions, gym memberships, and cable services. For instance, a typical monthly expenditure might look like this:

• Bob’s Pest Control: $1,000 (business expense)
• Jill’s Fertilizing: $600 (business expense)
• Insurance Company (Home & Auto): $3,000 (personal expense)
• Ed’s Nursery: $2,000 (business expense)
• Chase Bank (Mortgage): $3,500 (personal expense)
• Comcast: $200 (personal expense)
• AT&T: $200 (personal expense)
• SIMPLE IRA: $4,000 (personal contribution)

While the costs associated with pest control, fertilizer, and nursery supplies clearly represented legitimate business expenses, the payments for the mortgage and other personal services raised a red flag concerning co-mingling funds.

The Accounting Dilemma

As I delved deeper into the financials, I discovered that the SIMPLE IRA contribution was also a personal expense not tied to any employer obligations. This revelation prompted me to consider how to accurately account for these transactions in QuickBooks.

My initial thought was to categorize these personal expenses as “Owner Draws.” However, I was met with resistance and confusion from both Liz and the retiring assistant when I attempted to discuss the significance of separating business and personal finances. They were accustomed to their handwritten ledger system, where all transactions were recorded collectively and later handed over to their accountant for sorting.

What Should Be Done?

This scenario raises an important question: Is this