Navigating Client Co-Mingling Issues: A Guide to Proper Expense Management in QuickBooks

Recently, I encountered a challenging situation while assisting a client in transitioning to QuickBooks for their Accounting needs. After a decade of managing finances manually, my client, Liz, faced the task of modernizing her Bookkeeping system following the retirement of her long-time assistant. Eager to lend a helping hand, I took on the responsibility of learning QuickBooks, only to quickly realize the complexities of the setup.

As I delved into their financial records, it became clear that there was a significant issue with co-mingling expenses. Liz had been using her business account to cover a multitude of personal expenses, including her mortgage, utility bills, gym memberships, and more. This was particularly concerning given that her business, a landscaping and gardening venture, should primarily be focused on tracking legitimate operational costs.

Understanding the Expense Breakdown

To illustrate the scope of the problem, consider the following monthly transactions from Liz’s business account:

• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Home & Auto Insurance: $3,000
• Ed’s Nursery: $2,000
• Chase Bank (Mortgage): $3,500
• Comcast (Cable): $200
• AT&T (Phone): $200
• SIMPLE IRA Contribution: $4,000

Upon examining these figures in QuickBooks, it was evident that while expenses related to pest control, fertilizing, and nurseries were valid business deductions, payments for the mortgage, insurance, and utilities were inappropriately comingled with business finances. This created confusion and made accurate Bookkeeping challenging.

Addressing the Co-Mingling Challenge

One of my initial steps was to clarify whether the SIMPLE IRA contribution was a business expense. After consulting the retiring administrative staff, I learned that it was, in fact, Liz’s personal contribution, further complicating the issue.

So, how should I handle this situation in QuickBooks? While it may seem overwhelming, it’s crucial to approach it with a structure in mind. Here are my recommendations:

1. Educate the Client: It’s vital to explain to Liz and her team the importance of separating personal and business expenses. Commingling not only complicates Accounting but could potentially lead to tax issues down the line.

2.