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

Recently, I took on a new challenge when a friend sought assistance in transitioning their business Accounting to QuickBooks after their long-time bookkeeper retired. Having no prior experience with the software, I accepted the task with optimism, ready to embrace the learning curve. However, I quickly found myself grappling with a significant issue: the co-mingling of personal and business expenses.

The client, Liz, operates a gardening and landscaping business, but her use of the business account has blurred the lines between personal and professional finances. Over the last decade, records were meticulously kept in hand-written ledgers, but the transition to QuickBooks exposed some troubling patterns. Major personal expenses were being charged directly to the business account, including mortgage payments, utilities, and gym memberships.

To provide context, here’s a snapshot of a typical month’s expenses:

• 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 Contribution: $4,000

While services like pest control and fertilization are clearly legitimate business expenses, personal costs such as the mortgage, utilities, and even contributions to her SIMPLE IRA pose substantial co-mingling challenges. Alarmingly, it was brought to my attention that the IRA contribution was Liz’s personal investment, also being disbursed from the business account.

Faced with this complexity, I found myself unsure of the best way to address the situation without alienating Liz or the retiring assistant. The two seemed puzzled—if not a bit irritated—by my inquiries, as they were accustomed to their previous system of tracking expenses without scrutiny.

So, what’s the best approach to rectify this issue within QuickBooks? My instinct is to categorize the personal expenses as “Owner Draws.” However, simply classifying these transactions may not provide a comprehensive solution to the overarching problem of financial clarity.

What Should You Do?

1. Educate the Client: Highlight the importance of separating personal and business finances for both legal and tax purposes. This will not only help them avoid potential penalties but also provide