Understanding Co-Mingling of Personal and Business Expenses in QuickBooks

Navigating the world of Accounting Software can be daunting, especially for someone stepping into the role after a period of manual Bookkeeping. Recently, a friend reached out for assistance in transitioning to QuickBooks after her long-time bookkeeper retired. Though eager to help, I quickly realized I was facing a more complex situation than anticipated.

The client, whom I’ll refer to as Liz, has been using her business account to cover various personal expenses. These costs include mortgage payments, utility bills, IRA contributions, gym memberships, and cable bills—items that clearly fall outside the realm of typical business transactions.

To illustrate, here’s a snapshot of one month’s transactions for Liz’s 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 the expenses related to pest control, fertilization, and nursery supplies are valid business costs, the inclusion of Liz’s personal bills raises a significant concern regarding co-mingling of funds. The presence of these personal expenditures in the business account complicates the financial picture and can lead to issues down the line, especially during tax season.

In discussions with the previous administrator, it became clear that the SIMPLE IRA contribution was not a business obligation, but rather Liz’s personal savings plan funded through the business account. This throws a wrench into traditional Accounting practices and raises the question: how should I handle these transactions within QuickBooks?

One solution I considered was categorizing these personal expenses as “Owner Draws.” However, this approach does not fully resolve the problem and may not align with best practices. Additionally, when I brought these issues to Liz’s attention, both she and her former assistant appeared perplexed and somewhat resistant to change. They’ve maintained a handwritten ledger for years and seem accustomed to passing everything off to their accountant without scrutiny.

This situation leads to an important question: Is this a legitimate issue, or am I overreacting? The answer is clear—co-mingling personal and business expenses can lead