Navigating Client Co-Mingling Issues in QuickBooks: A Guide for New Users

Transitioning from manual Bookkeeping to an Accounting Software like QuickBooks can be both exciting and daunting, especially for those unaccustomed to digital systems. Recently, a friend faced this exact challenge after their long-time assistant retired, leaving them to navigate a decade’s worth of handwritten records. As a result, I took it upon myself to help them learn QuickBooks.

However, I quickly discovered that this task was far more complex than I had anticipated. The business in question, a gardening and landscaping enterprise led by a client named Liz, has been paying for various personal expenses directly from its business account. Expenses such as mortgage payments, utility bills, IRA contributions, gym memberships, and cable services were all processed through the same account that handles legitimate business transactions.

To illustrate the issue, a typical month’s expenses presented in QuickBooks include:

• 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 pulled these transactions into QuickBooks, it became painfully clear that while expenses like pest control, fertilizing, and nursery costs are legitimate business deductions, the inclusion of mortgage payments and other personal bills presents a significant issue known as co-mingling.

When I inquired whether the SIMPLE IRA contributions were from the business as an employer contribution, the retiring bookkeeper clarified that these funds were personal contributions from Liz, right out of the business account.

This situation begs several questions: What steps should I take to address these co-mingling issues? Should I push for a separation of expenses, or is it acceptable to categorize these personal costs as “Owner Draws” in QuickBooks?

Seeking advice from Liz and the retiring assistant has so far led to confusion and frustration, as they have become accustomed to their previous manual record-keeping method. They typically recorded all transactions and submitted them to their accountant for clarification, without understanding the implications for their business finances.

So, am I overreacting to this situation? Is this a common dilemma, and if so, how should I