Navigating Co-Mingling Expenses in QuickBooks: A Guide for New Users

As a newcomer to the world of Accounting Software, I recently took on a challenge when a friend sought assistance in transitioning their hand-written Bookkeeping to QuickBooks after their long-time bookkeeper retired. What seemed like a straightforward task quickly became a complex puzzle that highlighted some significant co-mingling issues.

The client, Liz, runs a gardening and landscaping business, yet it appears she has been using her business account to cover numerous personal expenses, such as mortgage payments, utility bills, IRA contributions, gym memberships, and cable services—all of which should not typically be mixed with business finances.

To give you an idea of the situation, here are some typical monthly transactions that Liz has been recording out of her business account:

• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Home & Auto Insurance: $3,000
• Ed’s Nursery: $2,000
• Mortgage Payment to Chase Bank: $3,500
• Comcast Bill: $200
• AT&T Bill: $200
• SIMPLE IRA Contribution: $4,000

Upon reviewing these transactions in QuickBooks, it became apparent that while expenses related to pest control, fertilization, and nursery supplies are legitimate business expenditures, other payments, like the mortgage and utility bills, signify a problematic mix of personal and business finances.

I also learned from the retiring bookkeeper that the SIMPLE IRA payment is not an employer contribution; instead, it’s a personal contribution from Liz, again paid with the business funds. This raises questions about how to properly categorize such transactions moving forward.

With this confusing scenario presented, the essential question is how to account for these personal expenditures in QuickBooks without causing friction with the client. Should these payments be categorized as “Owner Draws,” effectively marking them as personal expenses?

I’ve reached out to both Liz and the former bookkeeper for clarification, but their reactions have been less than enthusiastic. They seem puzzled by my inquiries, as they were used to simply maintaining a hand-written ledger and leaving it to their accountant to make sense of the finances.

So, here I am, uncertain about the best approach. Am I overreacting to what seems like a glaring issue? Is this a common challenge faced by business owners who mix personal and business finances? If so, what are the best practices for managing such situations in QuickBooks?

Understanding how to navigate