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

Title: Navigating Client Co-Mingling Issues in QuickBooks: A Practical Guide

As a newcomer to QuickBooks, my recent experience with a client’s Bookkeeping challenges has opened my eyes to the complexities of maintaining distinct financial boundaries for personal and business expenses. After I was hired to assist a friend whose business had relied on handwriting records for over ten years, I quickly recognized that this transition was more complicated than I initially anticipated.

My client, Liz, operates a gardening and landscaping business, and it became apparent that significant personal expenses were being paid from the business account. Items such as her mortgage, utility bills, IRA contributions, gym memberships, and cable expenses had all been charged to the business. These entries, which one might casually consider benign, indicated a serious co-mingling of funds.

To give you a clearer picture, here’s a snapshot of what a typical month looked like in their transaction records:

• 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 began entering this data into QuickBooks, it became evident that while the pest control, fertilizing, and nursery bills could rightly be classified as business expenses, the mortgage, utility payments, phone bills, and personal IRA contributions were all personal expenses in disguise. This blend of personal and business finances is likely to lead to confusion and complications during tax preparation.

In my discussions with Liz and her retiring assistant, questions about the SIMPLE IRA contribution revealed that it was, in fact, Liz’s personal input into her retirement plan—yet it was still charged to the business account. This raised significant concerns about how to accurately categorize these transactions within QuickBooks.

So, what is the best approach to address this co-mingling issue? Here are some actionable steps you can consider:

1. Establish Clear Boundaries: Encourage your client to maintain separate bank accounts for personal and business finances. This fundamental practice is essential for accurate Bookkeeping and tax reporting.

2. Use Owner Draws for Personal Expenses: In QuickBooks, categorize personal expenses as “Owner Draws.” This method acknowledges that