Navigating Client Co-Mingling Issues in QuickBooks: An Essential Guide

Managing finances for a business can be challenging, especially when improper expense tracking is involved. A recent experience with a client has brought to light the intricacies of handling co-mingled expenses in QuickBooks, and I believe sharing this insight could help others in similar situations.

After a friend’s Bookkeeping assistant retired, I stepped in to assist with transitioning their financial records to QuickBooks. Given that they had maintained their Accounting records manually for over a decade, I naively took on the role, expecting a manageable learning curve. However, I soon realized I was dealing with a complex situation.

The client, Liz, was using her business account to cover significant personal expenses. This includes payments for her mortgage, utilities, IRA contributions, gym memberships, and cable bills. In essence, her personal and business finances were not just intertwined but completely merged.

To give you a clearer picture, here’s a snapshot of a typical monthly expenditure for Liz’s gardening and landscaping business:

• 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

Upon pulling these records into QuickBooks, it became evident that virtually all payments came from the same business account. While expenses related to pest control, fertilizer, and landscaping materials are clearly business-related, the payments for mortgage, utilities, and communication services suggest a significant co-mingling of funds.

When I inquired about the SIMPLE IRA contributions, I learned that these were personal contributions made from the business account, further complicating the situation.

So, what should one do in these instances? My initial thought was to advise Liz to separate her business and personal expenditures. However, asking her to make this change seemed daunting, especially since the owner and her former administrator appeared confused about why I was raising these concerns. They were accustomed to the handwritten ledger system and relied on their accountant to clarify any discrepancies.

Throughout this process, I’ve grappled with whether my concerns are warranted. Is this an overreaction, or is the co-mingling of personal and business funds truly an issue? The answer is