Navigating Client Co-Mingling Issues in QuickBooks

Recently, I encountered a challenging situation while assisting a client transition from manual Bookkeeping to QuickBooks. After the retirement of a long-time assistant/bookkeeper, I took on the task of helping the business owner, Liz, who had been maintaining their financial records by hand for approximately a decade.

With minimal prior experience using QuickBooks, I quickly discovered that I was facing a more complex scenario than anticipated. Upon reviewing the transactions, it became evident that Liz was using her business account for significant personal expenses, ranging from mortgage payments to gym memberships, which raised some red flags about co-mingling finances.

In the landscaping business, a typical month’s transactions might include legitimate business expenses such as pest control services and nursery supplies, but it also included personal expenditures like mortgage payments, utility bills, and contributions to her IRA — all processed through the same business account. For example:

| Transaction | Amount |
|————-|——–|
| Bob’s Pest Control | $1000 |
| Jill’s Fertilizing | $600 |
| Home & Auto Insurance | $3000 |
| Ed’s Nursery | $2000 |
| Mortgage (Chase Bank) | $3500 |
| Comcast | $200 |
| AT&T | $200 |
| SIMPLE IRA | $4000 |

While the charges from Bob’s Pest Control and Ed’s Nursery made sense in the context of a landscaping business, the inclusion of personal bills such as cable and phone services raised concerns about proper Accounting practices. Notably, Liz’s contribution to her SIMPLE IRA—identified as a personal payment—was another instance of financial co-mingling.

The challenge is twofold: First, I need to address these co-mingled expenses in QuickBooks, and second, I must navigate the client’s responses. Both Liz and her retiring admin seemed puzzled by my inquiries about these expenditures, likely due to their previous method of simply recording everything manually without much scrutiny.

So, where does this leave me? Should I classify these personal expenses as “Owner Draws” in QuickBooks? Although this might provide a temporary solution, it could overlook the complexity and potential risks associated with mixing personal and business finances.

My approach moving forward will involve gently guiding the client to understand the importance of separating business and personal transactions. It’s crucial for maintaining accurate records and ensuring compliance during tax season. Additionally, these changes could enhance their financial clarity and decision-making as the business grows.

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