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

As business owners, maintaining clear separation between personal and business expenses can be a major challenge. I recently encountered a practical example of this when a friend approached me for assistance after her long-time bookkeeper retired. Eager to help, I took the opportunity to dive into QuickBooks, despite my lack of experience with the software. However, I quickly realized that I had stumbled into a complex situation involving significant co-mingling of funds.

My friend, Liz, operates a gardening and landscaping business, and after reviewing her financial records, it became clear that she was using her business account to cover various personal expenses. These included well-known items such as mortgage payments, utility bills, contributions to her IRA, gym memberships, and even her cable and phone bills. For the past decade, Liz and her assistant had been managing all of this meticulously on paper, but transitioning to QuickBooks exposed the cumbersome reality.

A Closer Look at the Financial Records

In one typical month, Liz’s transactions revealed a mixed bag of legitimate business expenses and personal outlays. Here’s a snapshot of what I found:

| Description | 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 it’s clear that transactions related to pest control, fertilizing, and nursery supplies are valid business expenses, the inclusion of mortgage payments, cable services, and personal IRA contributions signifies a troubling co-mingling of funds.

The Challenge of Owner Contributions

I learned that the SIMPLE IRA payment was entirely personal, not linked to employer contributions. This raised poses a significant Bookkeeping challenge: How do I account for these personal expenses in QuickBooks without compromising the integrity of the business’s financial statements?

Attempts to discuss these issues with Liz and her retiring assistant have been met with confusion and annoyance. Their established practice of simply documenting expenses by hand and passing the information to their accountant has created a disconnect—a misunderstanding of why it’s essential to maintain clear boundaries between personal and business finances.