Navigating Client Co-Mingling in QuickBooks: A Guide to Managing Personal and Business Expenses

Recently, I was tasked with helping a friend transition their gardening and landscaping business to QuickBooks after their long-time bookkeeper retired. This challenge turned out to be more complex than anticipated, primarily due to a significant issue with co-mingling personal and business expenses.

The owner, Liz, had previously managed her Accounting using a hand-written ledger for over a decade. However, this informal system concealed major complications. Upon reviewing the expenditures, I noticed that Liz was making substantial personal payments directly from her business account. These expenses included her mortgage, utility bills, gym memberships, and even contributions to her IRA.

For context, here’s a brief overview of a standard month’s transactions for the business:

| Expense Description | 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 transferred these records into QuickBooks, it became clear that legitimate business expenses coexisted with Liz’s personal charges. While the fees for pest control and nursery supplies are justifiable, the mortgage, cable, and phone bills were problematic, raising concerns about proper Bookkeeping protocols.

Particularly striking was the revelation that Liz’s SIMPLE IRA contribution, which I presumed was an employer contribution, actually came from her personal funds.

So, what do I do with this information? It seems unreasonable to expect Liz to separate her expenses meticulously on her own, especially since she and her former bookkeeper were accustomed to a simpler method of record-keeping. Am I overreacting in highlighting this issue? Or is it a genuine concern that requires a solution?

Steps to Address Co-Mingling in QuickBooks

1. Separate Business and Personal Accounts: Encourage Liz to establish separate accounts for her personal and business finances. This fundamental change can dramatically reduce confusion in future Accounting.

2. Owner Draws for Personal Expenses: For transactions that have already been made using the business account, classify these personal expenses as “Owner Draws” in QuickBooks