Navigating Client Co-Mingling Issues in QuickBooks: A Guide for New Bookkeepers

When it comes to managing finances, transitioning from manual Bookkeeping to a digital platform like QuickBooks can feel daunting. Recently, I encountered a significant challenge while assisting a friend’s gardening and landscaping business that had relied on hand-written records for over a decade.

After her long-time assistant/bookkeeper retired, my friend sought help to make the leap to QuickBooks. Taking on this role might have been a bit ambitious for me, but I was eager to learn. What I quickly discovered, however, was a complicated situation regarding the business’s finances—particularly with the co-mingling of personal and business expenses.

The Co-Mingling Dilemma

As I dug into the financial records, it became clear that the owner, Liz, was using her business account to pay for a number of personal expenses. This list includes major items like her mortgage, utilities, IRA contributions, gym memberships, and cable bills. While legitimate business expenses, such as payments to pest control, fertilizer suppliers, and nurseries, highlighted the company’s operational costs, the personal payments posed a significant co-mingling problem.

To illustrate, here are some transactions I encountered while populating QuickBooks:

| Vendor/Source | 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 |

While it’s easy to identify the business-related expenses, the inclusion of mortgage payments, utilities, and personal contributions to the SIMPLE IRA indicated a significant overlap between Liz’s personal and professional finances.

Addressing the Issue

Initially, I approached the retiring bookkeeper for clarification regarding the SIMPLE IRA contributions. Upon learning that these were personal contributions being paid from the business account, it raised a red flag for me. Despite my attempts to discuss the significance of separating these expenses with Liz and the departing administrator, my inquiries were met with confusion and mild annoyance. They were accustomed to maintaining their ledger without dissecting the nature of each transaction before handing them over to their accountant.

So