Navigating Co-Mingling of Expenses: A QuickBooks Dilemma

Recently, a friend approached me for assistance after her bookkeeper, who had diligently managed their books by hand for nearly a decade, retired. With plans to transition to QuickBooks, she sought my help to step into this new digital Accounting world. Having no formal experience with the software, I eagerly accepted the challenge, believing it would be a valuable opportunity for me to learn.

As I delved into the records, I quickly discovered the complexity of the situation. The client’s business accounts appeared to be substantially intertwined with personal finances, raising significant concerns about co-mingling. The business in question is a gardening and landscaping service, and the transactions captured within their records included a mix of legitimate business expenses alongside personal bills.

For instance, here’s a snapshot of a typical monthly statement:

• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Home & Auto Insurance: $3,000
• Ed’s Nursery: $2,000
• Mortgage Payment to Chase Bank: $3,500
• Comcast (Cable): $200
• AT&T (Phone): $200
• SIMPLE IRA Contribution: $4,000

As I began to input these records into QuickBooks, it became glaringly obvious that various personal expenses were being funded directly from the business account. While the costs related to pest control, fertilizing, and nursery supplies clearly fell within the realm of business operations, items such as mortgage payments, utilities, and even gym memberships raised red flags.

To further complicate matters, when I inquired about the SIMPLE IRA contribution, I learned that it was not an employer’s contribution but rather an individual investment by the owner, Liz, effectively paid from business funds.

Now, this leaves me pondering: what’s the best course of action going forward? Should I request that the client separates their personal and business expenses? Or, would it be more appropriate to classify these personal withdrawals as “Owner Draws” in QuickBooks?

While I attempted to address my concerns with both the owner and the former bookkeeper, I was met with confusion and mild irritation. After years of relying on a handwritten ledger, they seemed unaware of the significant implications of their current Accounting practices. Their approach has been simple: record everything on paper and send it off to their accountant