Understanding Co-Mingling Issues: Properly Account for Personal Expenses in QuickBooks

Recently, I encountered a challenging situation while assisting a friend with their transition to QuickBooks for their gardening and landscaping business. The business owner, Liz, had relied on a manual Bookkeeping system for over a decade, but with the retirement of her bookkeeper, it was time to modernize and streamline her Accounting processes. As I delved into the financial records, I quickly realized the complexities of co-mingling personal and business expenses.

The Co-Mingling Dilemma

During my examination of the business accounts, I found several significant personal expenses being paid from the business account—items such as mortgage payments, utility bills, IRA contributions, gym memberships, and cable services. Here’s a snapshot of one typical month’s expenses:

• 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

It was clear that while some of these expenses, such as pest control and fertilizer, were legitimate business-related costs, others—like the mortgage and utilities—raised red flags regarding co-mingling.

Questioning the Status Quo

Upon discussing the SIMPLE IRA contributions with the retired admin, I learned that these payments were Liz’s personal contributions made from the business account. This indicated a significant lack of separation between personal and business finances, a situation that could lead to complications during tax season and possibly an Audit.

Despite my attempts to clarify these issues with Liz and the retiring administrator, my inquiries were met with confusion and annoyance. They were accustomed to a system where everything was recorded together in a handwritten ledger, leaving the accountant to sort it all out at the end of the year.

Finding a Solution

So, how do you navigate these co-mingling issues when it comes to Accounting in QuickBooks? Here are a few strategies to consider:

1. Educate the Client: It’s essential to explain why keeping business and personal expenses separate is crucial for financial accuracy and tax purposes. This can help clients understand the importance of maintaining clear boundaries.

2. Owner Draws: For the personal expenses