Navigating Client Co-Mingling Issues in QuickBooks: A New User’s Dilemma

Recently, I took on a project to assist a friend’s gardening business with transitioning to QuickBooks after her bookkeeper, who managed everything by hand for the past decade, retired. Although I had some familiarity with Accounting, I quickly found myself entangled in a complex situation far beyond my expectations.

The Challenge

As I delved into the financial records of the business, I noticed a significant issue: the owner, Liz, was using the company’s funds to cover various personal expenses. This encompassed costs like the mortgage, utility bills, IRA contributions, gym memberships, and even cable subscriptions. While I was prepared to categorize business transactions, it became clear that these personal charges were interwoven with legitimate business expenses.

To illustrate, a typical month of transactions 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 reviewing these entries in QuickBooks, it became evident that personal expenses were being paid from the same account designated for business operations. The transactions related to pest control, fertilizers, and nursery supplies were clearly business-related, but the mortgage and utility payments raised a red flag regarding co-mingling funds.

I was taken aback upon learning from the retiring administrator that not only were personal expenses being drawn from the business account, but the SIMPLE IRA contributions were also personal in nature, rather than employer contributions.

Navigating the Waters

Faced with this situation, I pondered the best course of action. It was tempting to suggest that Liz separate her personal and business expenses moving forward. However, with her and the departing administrator showing confusion at my inquiries—having grown accustomed to merely recording everything manually and passing it to their accountant—I felt uncertainty in how to proceed.

The question that lingered was how to properly account for these personal expenses in QuickBooks. Should I simply classify them as “Owner Draws,” or were there more suitable avenues to explore?

Seeking Solutions

It’s clear that this is a necessary area for improvement