Addressing Client Co-Mingling in QuickBooks: A Step-by-Step Guide

Navigating the world of QuickBooks can be challenging, particularly for those transitioning from manual Bookkeeping after a decade. I’ve recently taken on the task of helping a friend, who owns a gardening and landscaping business, streamline her financial records following the retirement of her assistant/bookkeeper. Little did I know the complexities that awaited me.

After being hired to assist, it became clear that co-mingling of personal and business expenses had occurred. The business account was being used for personal costs such as mortgage payments, utilities, gym memberships, and even IRA contributions. Such a practice raises significant concerns for accurate financial reporting and compliance.

Understanding the Issue

In reviewing the records, it was apparent that while some expenses were legitimate business costs—like pest control services and fertilizers—many others, such as mortgage and insurance payments, clearly fell outside the realm of business operations. Here’s a snapshot of the financial entries that were made:

• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Home & Auto Insurance: $3,000
• Purchases from Ed’s Nursery: $2,000
• Chase Bank (Mortgage): $3,500
• Comcast (Cable): $200
• AT&T (Phone): $200
• SIMPLE IRA: $4,000

Upon pulling these records into QuickBooks, I noted a troubling trend: the mixing of personal expenses with business transactions, leading to a significant co-mingling issue.

Moving Forward: What Are the Options?

After discussing my concerns with the retiring administrator, I discovered that the SIMPLE IRA contribution was personal and not a business expense. This discovery prompted a need for a solid plan to manage these discrepancies. As I pondered on how to rectify this situation, several questions arose:

1. How should personal expenses be categorized in QuickBooks?
2. Is it appropriate to simply label these as “Owner Draws”?
3. How can I effectively communicate the importance of resolving this mix-up to the client?

Despite trying to clarify these issues with the business owner and the former assistant, my inquiries were met with confusion and some annoyance. Their long-standing practice of recording everything on a handwritten ledger had them accustomed to a certain workflow, leaving little room for changes or