Navigating Client Co-Mingling Issues: QuickBooks Accounting Guidance

When it comes to Bookkeeping, the transition from manual records to software systems like QuickBooks can be daunting, especially for small business owners unfamiliar with modern Accounting practices. Recently, a friend of mine faced this challenge after their assistant/bookkeeper retired, leaving them in need of support for their landscaping business.

As I took on the role of transitioning their records to QuickBooks, I quickly discovered a significant Accounting issue: co-mingling of personal and business expenses. As I delved into the records, I found that the business account was being used to pay for a variety of major personal expenses, including:

• Mortgage payments
• Utilities
• IRA contributions
• Gym memberships
• Cable bills

In reviewing the transactions, I noticed a mix of both legitimate business expenses—like pest control and nurseries—and personal expenditures that should not have been made from a business account. For example, in a typical month, the business records showed payments to entities including:

| Vendor | Amount |
|————————–|———|
| 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 | $200 |
| AT&T | $200 |
| SIMPLE IRA | $4,000 |

Clearly, while expenditures like pest control and fertilizers are directly related to the business’s operations, others—such as mortgage payments and personal insurance—signal a significant co-mingling issue that needs to be addressed.

In my attempts to clarify the situation, I spoke with the retiring assistant and the business owner. I even inquired whether the IRA contribution was a business expense, only to learn it was Liz’s personal contribution paid out of the business account.

So, how do I navigate this complex landscape in QuickBooks? The first step is distinguishing between legitimate business expenses and personal payments. While I understand the owner’s familiarity with recording expenses by hand, the transition to digital Bookkeeping requires a shift in perspective.

One potential solution is to categorize personal expenses as “Owner Draws” within QuickBooks. This approach allows for differentiation between what is personally owned versus what is damageable to the business, though it’s not without its challenges. The difficulty