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

Navigating Client Co-Mingling Issues in QuickBooks: A Guide for New Accountants

Recently, a friend reached out for assistance with QuickBooks after the retirement of their long-time bookkeeper. Having witnessed their struggles with a manual Accounting system for over a decade, I thought it would be a great opportunity to dive into QuickBooks and take on the challenge. After securing the position, I quickly discovered just how complex the situation truly was.

My client, Liz, had been utilizing her business account for a significant amount of personal expenses, including mortgage payments, utility bills, IRA contributions, and even gym memberships. To illustrate, here’s an overview of a typical month’s transactions for her gardening and landscaping business:

| Transaction | Amount |
|——————————–|———|
| 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 |

While I identified several legitimate business expenses—like payments to pest control, fertilizers, and nurseries—it’s the mortgage and personal-related expenses such as cable and phone bills that raised serious red flags regarding co-mingling of funds.

When I inquired about the SIMPLE IRA contribution, I learned it was Liz’s personal contribution, further paid from the business account. This revelation left me wondering about the appropriate way to handle these transactions moving forward. Is it best to categorize these personal expenses as an “Owner Draw” within QuickBooks?

As I navigated through the process, I found myself trying to clarify these issues with both Liz and her assistant. Unfortunately, my questions were met with confusion and irritation, reflecting their unfamiliarity with the urgency of separating personal and business finances. For them, simply recording transactions in a ledger and passing it along to their accountant was the norm.

So, what’s the best course of action in a situation like this? Is there a proactive approach I can take to ensure that these discrepancies are handled correctly in QuickBooks without stepping on toes or creating unnecessary tension?

If you find yourself in a similar predicament, here are a few steps to consider:

1. Educate Your Client: Start with a conversation to explain the importance of separating