Client Co-Mingling Issue – how to account for these “expenses” in QuickBooks?

Navigating Co-Mingling Expenses in QuickBooks: A Guide for Small Business Owners

When transitioning to a digital Accounting system like QuickBooks from a manual record-keeping method, it’s not uncommon to encounter challenges—especially when personal and business expenses are intertwined. This was the case for my friend Liz, who recently hired me to assist with her flourishing gardening and landscaping business after her long-time bookkeeper retired.

For the past decade, Liz and her bookkeeper have maintained meticulous handwritten records, but moving to QuickBooks brought forth a significant issue: co-mingling of personal and business expenses. As I delved into the accounts, I discovered that a variety of personal expenses—such as mortgage payments, utility bills, gym memberships, and even IRA contributions—were being processed through the business account. Here’s a snapshot of what I found in their monthly transactions:

| Transaction | 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 the transactions related to pest control and landscaping supplies certainly qualify as legitimate business expenses, the mortgage and other personal costs raise a red flag regarding the integrity of the business records.

Upon further investigation, I learned that the SIMPLE IRA contribution was indeed a personal cost, paid from the business account rather than as an employer contribution. As a newcomer to QuickBooks, I found myself grappling with how to handle this situation correctly.

What Should You Do If You Encounter Co-Mingling?

The first step is to clarify the nature of these mixed transactions with your client. However, in my experience, raising these issues can sometimes lead to frustration or confusion—particularly for clients used to more informal Accounting practices. It’s essential to approach discussions with sensitivity and a solution-oriented mindset.

Here are some recommendations for managing these co-mingled expenses in QuickBooks:

1. Separate Personal and Business Expenses: Encourage your client to maintain separate accounts for personal and business transactions moving forward. This could significantly simplify the Bookkeeping process and reduce confusion down the line.

2. **Record Personal Expenses as Owner