Navigating Client Co-Mingling Concerns: How to Properly Account for Personal Expenses in QuickBooks

Recently, I encountered an interesting challenge while assisting a friend who needed guidance in transitioning their business Accounting to QuickBooks. With her long-time bookkeeper retiring, Liz had been managing the financial records of her gardening and landscaping business manually for the past decade. Despite my enthusiasm to learn QuickBooks, I quickly realized just how complex this task was.

As I delved into the business’s finances, it became apparent that Liz was using her business account to pay for significant personal expenses. The transactions included customary bills like mortgage payments, utilities, IRA contributions, gym memberships, and cable services—items that should never be mixed with business finances. This scenario immediately raised a red flag for me, indicating a potential issue with co-mingling funds.

To illustrate, a typical month’s expenses for the business looked something like this:

• 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

Upon entering these records into QuickBooks, it became evident that many of these transactions—essentially the mortgage, cable, and personal insurance—were not legitimate business expenses. Yet, they were being withdrawn from the same business account, leading to a serious co-mingling issue.

As I sought clarification from the retiring bookkeeper, it turned out that the SIMPLE IRA contribution was also a personal payment made from the business account, further complicating the situation. This raised an important question: How should I account for these personal expenses while maintaining the integrity of the business’s financial records?

Despite my efforts to engage Liz and the retiring administrator in a dialogue about these transactions, they seemed either confused or frustrated by my inquiries. Their experience with a hand-written ledger meant that they had historically left these matters for their accountant to handle, which only added to my concern about compliance and accuracy in record-keeping.

So, what steps can I take to effectively address this issue within QuickBooks? One likely solution is to classify these personal expenses as “Owner Draws.” This would allow me to segregate