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

Managing business finances can sometimes lead to complexities that leave even the most diligent professionals scratching their heads. This was precisely the case for me when I took on a new role to assist a friend in transitioning her gardening and landscaping business to QuickBooks after her longtime bookkeeper retired. While I was eager to dive in and learn, it soon became clear that I was facing significant challenges surrounding expense categorization and co-mingling.

Assessing the Situation

My client, Liz, had been managing her business accounts manually for over a decade, carefully noting transactions in a ledger. However, upon transferring her records into QuickBooks, I discovered a troubling pattern: many personal expenses were being paid from the business account. These included payments such as mortgage bills, utility costs, gym memberships, and even contributions to her IRA.

To illustrate, a typical month showed a mixture of both legitimate business expenses and personal payments:

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

This blend of personal and business expenses raised alarms for me. While the gardening supplies and pest control services were clearly business-related, the inclusion of mortgage payments and subscriptions to personal services indicated a significant co-mingling issue.

The Dilemma

During my conversations with Liz and her retiring assistant, it became evident that they were accustomed to recording everything together without differentiating between personal and business expenses. This practice, while manageable in the past, posed a considerable risk in terms of accurate financial reporting and compliance.

Seeking Solutions

Caught in this challenging situation, I found myself wondering: how do I address these co-mingling issues effectively? My options seemed limited. Short of advising Liz to reorganize her entire expense tracking system, I needed a strategy that would allow me to navigate this complicated scenario in QuickBooks.

One potential approach was to categorize the personal expenses as “Owner Draws”. This method would help delineate personal expenditures from legitimate business costs within the Accounting Software. However, I worried about how Liz would react to this suggestion, as both she and her assistant appeared perplexed by