Navigating Client Co-Mingling in QuickBooks: A Practical Guide

Recently, I took on a challenge when a friend asked for assistance with transitioning their business finances into QuickBooks after their long-time bookkeeper retired. The business, a landscaping venture, had been utilizing a handwritten ledger for over a decade, and the owner, Liz, was looking to modernize her Accounting practices.

When I stepped in, I quickly found myself in deeper waters than I anticipated. It became apparent that Liz was utilizing her business account for a variety of personal expenses, including mortgage payments, utility bills, IRA contributions, gym memberships, and even cable subscriptions.

To give you a clearer picture, here’s a rough breakdown of what a typical month looked like for this landscaping business:

| Vendor/Service | 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 |

As I transferred records into QuickBooks, it became evident that these various expenses were all being drawn from the same business account. While the charges from pest control, fertilizer suppliers, and nurseries rightfully align with business activities, the payments for the mortgage, phone, cable, and personal insurance raised significant red flags regarding co-mingling.

A particular concern arose when I learned that the SIMPLE IRA contribution, which I initially presumed was a business expense, was actually a personal contribution made by Liz from her business funds. This situation prompted several important questions about how to handle these transactions in QuickBooks.

I reached out to Liz and her former assistant for clarity, but their response suggested a level of disbelief and confusion over my inquiries. They had become accustomed to a system that involved recording everything in their handwritten ledger and relying on their accountant to sort it all out at the end of the year.

This situation leads to the primary question: how should such personal expenses be accounted for in QuickBooks? Should I categorize these as “Owner Draws” in order to keep the business and personal finances clearly delineated?

As I stared down this formidable challenge, I couldn’t help but wonder: Am I