Navigating Client Co-Mingling Issues: Best Practices for QuickBooks Accounting

Recently, a colleague of mine faced a challenging situation when helping a friend transition from manual Bookkeeping to QuickBooks. After the long-time assistant and bookkeeper retired, this friend, who runs a gardening and landscaping business, sought assistance to modernize their financial tracking. Despite my eagerness to learn QuickBooks, I quickly realized that I had taken on more than I bargained for.

The primary concern was the business account, which was being used for both business and personal expenses. This included substantial payments for items such as the mortgage, utilities, IRA contributions, gym memberships, and cable bills—expenses that should typically be kept separate from business finances. For the past decade, the client and their assistant had maintained these records in a handwritten ledger, which posed its own challenges.

Here’s a snapshot of what a typical month’s transactions looked like in their records:

• 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 started integrating these records into QuickBooks, it became evident that while some expenses, like pest control and fertilizers, were legitimate business costs, many others—such as the mortgage and personal utility bills—raised serious concerns about co-mingling finances.

In a conversation with the retiring bookkeeper, I learned that the SIMPLE IRA contribution was not an employer’s contribution but rather a personal payment made by the owner, Liz, from the business account. This situation left me pondering the best approach for accurately representing these transactions in QuickBooks without compromising clarity or compliance.

So, what steps should I take in this scenario? Is it enough to classify personal expenses as “Owner Draws” in QuickBooks, or should there be a more structured approach? When I attempted to raise these concerns, both Liz and her former assistant appeared to be puzzled and somewhat resistant to my inquiries, as they had become accustomed to their conventional method of record-keeping and relied on their accountant for final clarifications.

Am I overreacting? Is this type of co-mingling a legitimate concern?