Navigating Client Co-Mingling Issues in QuickBooks: A Case Study

Transitioning from manual Bookkeeping to an Accounting Software like QuickBooks can be a daunting challenge, particularly when personal and business finances become intertwined. This was the experience of a client, Liz, who recently lost her trusted assistant/bookkeeper after a decade of managing her gardening and landscaping business through handwritten ledgers. In this blog post, I’ll recount the lessons learned while tackling Liz’s Accounting conundrum—a situation that may resonate with many small business owners.

The Challenge

Upon stepping in to assist Liz with her transition to QuickBooks, I quickly recognized that I was confronted with a significant co-mingling issue. It became apparent that the business’s bank account was being used for various personal expenses, including:

• Mortgage Payments
• Utility Bills
• Gym Membership Fees
• Cable Charges
• IRA Contributions

While the business account should ideally only reflect expenses that directly contribute to the company’s operations, many personal items had somehow made their way onto the ledger. Here’s a snapshot of a typical month for Liz’s business:

| Expense | 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 examined the entries in QuickBooks, it was clear that the legitimate business expenses were being overshadowed by a host of personal charges. This raised an important question: how should I categorize these personal expenses in the Accounting system?

Seeking Clarity and a Solution

Recognizing the complexity of the situation, I reached out to Liz’s retiring admin to gain some perspective. When I inquired about whether the SIMPLE IRA contributions were employer-funded, I discovered that they were actually personal contributions—deposited directly from the business account.

Faced with this revelation, I pondered the best course of action. Should I simply categorize these personal charges as “Owner Draws”? And, more importantly, how could I help Liz understand the need to separate her personal finances from her business dealings?

When I attempted to discuss the matter further with both Liz