Navigating Client Co-Mingling Issues in QuickBooks: A Guide to Proper Accounting Practices

When you step into the world of Bookkeeping, especially for a small business, the learning curve can be steep and filled with surprises. Recently, I found myself in this very situation while assisting a friend who was transitioning from handwritten records to QuickBooks after their long-term bookkeeper retired. With ten years of manual ledger entries behind them, the shift to digital Accounting quickly spiraled into a complex challenge.

The Challenge

The business, a landscaping and gardening company run by a client named Liz, revealed a concerning practice: personal expenses were significantly intertwined with the business finances. Among the expenses processed through the business account were typical operational costs like pest control and fertilizer, but there were also notable personal expenditures such as mortgage payments, utility bills, retirement contributions, and even gym memberships.

For a clearer picture, here’s a snapshot of what the typical monthly transactions looked like:

• 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 imported these items into QuickBooks, it became apparent that many transactions did not belong in a business account. While essential business-related expenses were present, the mix of personal costs indicated a serious co-mingling issue that could complicate financial reporting and tax preparation.

Addressing Co-Mingling

Recognizing this problem was just the first step. It’s essential to clarify the implications of such commingling, especially considering that a SIMPLE IRA payment was identified as a personal contribution rather than an employer-funded expense. This prompted the critical question: how should I address and account for these issues in QuickBooks?

Given the reluctance from both Liz and her retiring assistant to alter their established practices, it became evident that a gentle introduction to proper expense tracking was necessary. I found myself at a crossroads: should I simply report the personal expenses as “Owner Draws” in QuickBooks, or would that fail to address the underlying issue?

Crafting a Solution

To effectively manage and rectify these co-mingling issues, consider the following steps:

1. Separate Personal and Business Accounts: Encourage the client to open a personal bank account