Navigating Client Co-Mingling Issues: Accounting for Personal Expenses in QuickBooks

Transitioning from manual Bookkeeping to digital platforms like QuickBooks can be a challenge, especially when faced with co-mingling of personal and business expenses. A case in point involves a recent client, Liz, who found herself in a predicament after her long-time bookkeeper retired. With a wealth of experience maintaining records by hand, Liz’s team now required assistance in migrating their processes to QuickBooks. What I initially thought would be a straightforward task quickly became a complex situation.

Upon reviewing the financial records, it became evident that Liz had been using her business account for significant personal expenses. Items ranged from mortgage payments and utility bills to gym memberships, presenting a tangled mix of business and personal finances. Here’s a snapshot of what Liz’s typical monthly expenses looked like:

| Vendor | Amount |
|————————–|———|
| Bob’s Pest Control | $1,000 |
| Jill’s Fertilizing | $600 |
| Home & Auto Insurance | $3,000 |
| Ed’s Nursery | $2,000 |
| Chase Bank (Mortgage) | $3,500 |
| Comcast | $200 |
| AT&T | $200 |
| SIMPLE IRA | $4,000 |

As I began entering these transactions into QuickBooks, the distinction between legitimate business expenses and personal expenditures became increasingly blurred. While payments to pest control services and nurseries clearly fell under business-related activities, expenses such as the mortgage, cable, and phone bills presented a serious co-mingling concern.

Discussing the SIMPLE IRA with the retiring assistant revealed it was a personal contribution, further complicating the financial landscape. With all these payments being drawn from a single business account, I was left pondering the best approach to rectify the situation.

Addressing the Co-Mingling Challenge

The first question that arose was how to categorize these personal expenditures within QuickBooks. Should they be treated as an “Owner Draw,” or is there another method to distinguish between business and personal expenses? Although I sought clarity, my inquiries seemed to provoke annoyance—Liz and her assistant were accustomed to their manual record-keeping, where such distinctions were of little concern.

So, What Can Be Done?

1. Communication is Key: It’s important to communicate effectively with your client. Gently explain the implications of co-mingling and