Navigating Client Co-Mingling Issues: How to Account for Personal Expenses in QuickBooks

Transitioning to QuickBooks after years of manual Bookkeeping can be a daunting task, especially when personal and business finances become intertwined. A recent experience with a client, Liz, illuminated the complexities that arise from co-mingling personal expenses with business transactions.

The Situation

Liz owned a gardening and landscaping business and had relied on handwritten ledgers for nearly a decade to manage her finances. With the retirement of her trusty assistant/bookkeeper, she sought help in moving her records to QuickBooks. I jumped at the opportunity, eager to enhance my Accounting skills. However, it quickly became evident that I faced a significant challenge: major personal expenses were being charged to the business account.

While it’s understandable that some expenditures, such as pest control and gardening supplies, are crucial for the business, the same cannot be said for payments related to her personal life. Items such as mortgage bills, utility payments, IRA contributions, and even gym memberships appeared alongside legitimate business expenses in her financial records. Here’s a breakdown of typical monthly expenses Liz had recorded:

| Vendor | Amount |
|——————————|———-|
| 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 | $4,000 |

The Challenge of Co-Mingling Funds

Pulling together Liz’s records in QuickBooks, it became clear that her business account was being used as a catch-all for both personal and professional expenses. My conversation with the retiring administrator confirmed that even the SIMPLE IRA payment was her personal contribution, not an employer-sponsored expense.

At this point, I had to confront the reality: I needed to find a way to categorize these personal expenses without compromising the integrity of the business’s financial reporting. Here are the options I considered:

1. Owner Draws

One potential solution is to treat all personal expenses as “Owner Draws” in QuickBooks. This would help separate Liz’s business finances from her personal expenditures, but it still raises questions about the accuracy of the business’s financial reporting.

2. Communication with the