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

Taking on the Bookkeeping for a business comes with its own set of challenges, especially when transitioning from manual record-keeping to a digital system like QuickBooks. Recently, I had the opportunity to assist a client who found themselves in a situation that many small business owners may encounter: co-mingling of personal and business expenses.

The Background

A friend of mine reached out for assistance after her long-time bookkeeper retired. The task of moving from a handwritten ledger to QuickBooks was daunting for her, and after an informal interview, I acquired the role. However, it soon became apparent that I was facing a significant hurdle—one that not only affects the accuracy of financial records but can also have serious implications for taxes and financial clarity.

The Co-Mingling Dilemma

From my review of the transactions, it’s clear that many personal expenses are being paid from the business account. Here’s a quick snapshot of a typical month’s expenses for this gardening and landscaping business:

• 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 (personal contribution): $4,000

While reasonable business expenses such as pest control and fertilizing services are on the list, several charges stand out, including mortgage payments and various utility bills. These expenditures indicate a significant mix of personal and business finances—a situation known as co-mingling.

Understanding the Implications

Co-mingling not only complicates Bookkeeping but poses challenges during tax season and can create an inaccurate picture of the business’s financial health. In this case, the SIMPLE IRA payment was particularly telling; it was revealed that the business funds were being used for Liz’s personal retirement contributions, rather than any employer-sponsored plan.

Addressing the Issue in QuickBooks

Realizing the extent of the co-mingling, I was confronted with a critical question: how should I handle these personal expenses recorded in QuickBooks? My current line of questioning has brought confusion to both the business owner and the former assistant, who seem perplexed by the need for clarification. They have been accustomed to lumping everything together in their handwritten practices before handing