Navigating Client Co-Mingling Issues in QuickBooks: A Practical Guide

When stepping into the world of Accounting Software like QuickBooks, particularly for businesses transitioning from traditional record-keeping methods, challenges often arise. Recently, a friend reached out to me for assistance after their bookkeeper retired, and it quickly became clear that the intricacies of managing their accounts were more complex than initially anticipated.

The client, Liz, has been operating a landscaping and gardening business with a unique approach—keeping financial records by hand for over a decade. Although this method served them well until now, the shift to QuickBooks exposed significant co-mingling of personal and business finances that needs to be addressed.

The Co-Mingling Challenge

Upon reviewing Liz’s transactions, I found a mix of legitimate business expenses and substantial personal costs all being paid from the same business account. Key monthly expenses were categorized as follows:

• Bob’s Pest Control: $1000
• Jill’s Fertilizing: $600
• Home & Auto Insurance: $3000
• Ed’s Nursery: $2000
• Chase Bank Mortgage: $3500
• Comcast (Cable): $200
• AT&T (Phone): $200
• SIMPLE IRA Contribution: $4000

While the payments for pest control, fertilizers, and nursery supplies clearly pertained to business operations, the payments for the home mortgage, cable bill, phone service, and even personal IRA contributions raised red flags regarding proper Accounting practices.

The Dilemma of Accounting for Personal Expenses

The situation became more complicated when I learned that the SIMPLE IRA contribution was, in fact, a personal investment made from funds in the business account. Given that the previous method of record-keeping involved a handwritten ledger, introducing QuickBooks has left both the client and the former admin feeling overwhelmed and uncertain about financial best practices.

During my discussions with them, I faced resistance to my inquiries about these transactions. Their familiarity with a track record that required minimal scrutiny made them skeptical of changes. However, it is essential to address these co-mingling issues directly.

Seeking Solutions in QuickBooks

So, what steps can be taken to rectify this situation? Here are some suggestions to consider:

1. Separate Business and Personal Finances: The most straightforward solution is to encourage Liz to start separating her personal expenses from her business finances. Ideally, personal expenses should be funded through a personal account.

2. Classifying Owner Draws