Navigating Client Co-Mingling in QuickBooks: Solutions for Common Challenges

Managing the financial records of a business can often present unique challenges, especially when transitioning from manual Bookkeeping methods to software like QuickBooks. Recently, I took on an intriguing project for a client in the gardening and landscaping business, who was looking to modernize their Bookkeeping after years of relying solely on a handwritten ledger. Here’s what I learned about a particularly thorny issue: client co-mingling.

The Background

When I stepped into this role, I discovered that the previous bookkeeper had retired, leaving me to step in and take over the financial tracking. Initially, I was excited to learn QuickBooks and tackle this new responsibility. However, I quickly realized that I was confronted with a significant co-mingling issue involving personal and business expenses.

Understanding the Problem

The client, Liz, has been mixing personal costs with her business expenditures. This includes payments for items such as her mortgage, utilities, gym memberships, and even contributions to her IRA, all processed through her business account. Here’s a brief overview of a typical month’s entries in the ledger:

| Vendor/Service | 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 legitimate business expenses like pest control and nursery supplies were clear, the mortgage, utility bills, and personal IRA contributions raised red flags for me. These personal costs being charged to the same account as business expenses indicate a potential violation of best Accounting practices.

What Can Be Done?

After identifying this issue, I faced a pivotal question: how should I address these personal expenses in QuickBooks?

1. Owner Draws: One solution could be to categorize these personal expenses as “Owner Draws.” This would effectively separate personal costs from business finances. However, the concept of owner draws may not be familiar to Liz and her retiring assistant, who were accustomed to their manual system.

2. Encourage Separation: While I sensed they might be resistant to change, altering how they categorize and