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

Managing finances can be a complex endeavor, especially when transitioning from traditional Bookkeeping methods to software like QuickBooks. A recent experience with a client, who had previously managed their accounts on paper for a decade, highlighted a common issue: the co-mingling of personal and business expenses.

The Challenge at Hand

After a friend’s bookkeeper retired, I stepped into the role, eager to assist in migrating their manual records into QuickBooks. However, I quickly discovered that this small gardening and landscaping business had been mixing personal and business expenses in a way that raised several red flags. For instance, the business account was being utilized for the following expenditures:

• Business Expenses:
• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600

• Ed’s Nursery: $2,000

• Personal Expenses:

• Chase Bank (Mortgage): $3,500
• Comcast (Cable): $200
• AT&T (Phone): $200
• SIMPLE IRA (Personal Contribution): $4,000

In total, while some expenses were clearly related to business operations, many payments, such as the mortgage and utility bills, appeared to be personal in nature and paid from the same business account.

Understanding the Implications

Co-mingling business and personal finances can create significant complications for any business owner. It not only complicates Bookkeeping but also invokes potential tax consequences and can confuse financial reports. Furthermore, in my discussions with the retiring administrator, I learned that the SIMPLE IRA contribution was actually a personal investment made through the business account, which only complicates matters further.

Crafting a Strategy for QuickBooks

As I sought advice on how to categorize these expenses within QuickBooks, I wrestled with a critical question: Should I treat these personal expenses as an “Owner Draw”? After all, this could simplify reporting while still respecting the separation of personal and business finances.

However, engaging the client in discussions about expense classification proved challenging. They seemed perplexed—and somewhat defensive—regarding why these distinctions were necessary. Their prior process had been straightforward: record everything in a hand-written ledger and hand it over to an accountant for analysis.

Advice for New Bookkeepers

So, what should you do if you find yourself in a similar situation?

1. Educate the Client: Taking the