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

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

When taking on the responsibility of managing financial records for a business, especially one transitioning from manual methods to a robust Accounting Software like QuickBooks, challenges can arise. A recent experience with a client sheds light on the common problem of co-mingling personal and business expenses, and I’d like to share insights on how to navigate this issue effectively.

The Situation

I was approached by a client whose assistant and bookkeeper had recently retired. After a decade of maintaining financial records manually, my friend needed help migrating to QuickBooks. Eager to expand my knowledge, I took on the project, only to quickly realize the extent of the challenges at hand.

The client, Liz, had been using her business account not just for legitimate business expenses, but also for major personal expenditures such as:

• Mortgage payments
• Utilities
• Gym memberships
• Cable bills
• Retirement contributions

In the realm of her gardening and landscaping business, the monthly transactions included legitimate business expenses alongside these personal costs, all drawn from the same account. Here’s a snapshot of her typical monthly expenses:

| Vendor | 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 expenses associated with pest control, fertilizing, and nursery supplies are clearly business-related, it became evident that the mortgage and utility bills represented a significant issue of co-mingling—mixing personal and business funds.

Addressing the Co-Mingling Issue

To clarify the situation, I engaged with the retiring admin, who revealed that the retirement fund contributions were personal as well. Despite my inquiries, both the owner and the former assistant seemed perplexed and slightly annoyed by the need to separate these expenses—having relied on a handwritten ledger for years, they were accustomed to a simpler approach.

So, what does one do in such a scenario? After analyzing these expenses, I considered a few potential solutions:

1. Classify Personal Expenses as Owner Draws: In QuickBooks