Navigating Client Co-Mingling Issues: A Guide to Managing Personal Expenses in QuickBooks

In the world of Bookkeeping, precision and clear boundaries are essential for maintaining financial integrity. Recently, I found myself helping a client, Liz, who had transitioned from traditional handwritten record-keeping to QuickBooks after her long-time bookkeeper retired. This experience not only proved to be a learning opportunity for me but also shed light on crucial co-mingling issues that can arise when personal and business expenses overlap.

The Challenge of Co-Mingling

Liz operates a gardening and landscaping business, and while she has generated revenue through services like pest control and fertilization, I soon discovered that significant personal expenses were being charged to the business account. These included not just common household bills like mortgages, utilities, and gym memberships, but also contributions to a retirement account—all paid straight from the business funds.

To illustrate, here are some typical transactions I found during my initial setup in QuickBooks:

• 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 related to the gardening services clearly qualify as legitimate business costs, it was evident that the personal expenses were creating a complex situation that needed addressing.

Understanding the Implications

The challenge here lies in how to categorize these transactions appropriately within QuickBooks. In conversations with Liz’s retiring assistant, I learned that the SIMPLE IRA contributions were indeed personal rather than employer contributions. This is a classic example of co-mingling, where personal spending infiltrates business finances, leading to potential Accounting headaches down the line.

What Are the Next Steps?

Confronted with this dilemma, I sought to understand the best course of action. Is it necessary to ask Liz to sort out her expenses, or can I address the issue within QuickBooks itself?

1. Categorization of Transactions: My initial thought was to label all personal expenses as “Owner Draws.” This designation helps identify them as non-business transactions, ensuring accurate financial reporting.

2. Open Communication: It became clear that there is a need for an open dialogue with Liz and her assistant about