Navigating Co-Mingling Issues in QuickBooks: A Guide for New Users
In today’s business landscape, proper financial management is crucial. Recently, I encountered a challenging situation that many small business owners may face, especially when transitioning from manual Bookkeeping to sophisticated Accounting Software like QuickBooks.
The Challenge: Identifying Co-Mingled Expenses
A friend reached out to me for assistance after her long-time bookkeeper retired. Having relied on a handwritten ledger for over a decade, they were seeking help in transitioning to QuickBooks. Taking this opportunity to expand my own knowledge, I agreed to help. However, I quickly found myself grappling with a significant issue: the co-mingling of business and personal expenses.
The client, Liz, is the owner of a landscaping business, and upon reviewing the financial records, it became clear that she was using the business account to pay for several significant personal expenses. These included:
- Mortgage payments
- Utility bills
- IRA contributions
- Gym memberships
- Cable and internet bills
To illustrate, here was a snapshot of an average month’s transactions:
| Vendor | Amount |
|————————-|————|
| Bob’s Pest Control | $1,000 |
| Jill’s Fertilizing | $600 |
| Insurance Co. (Home & Auto)| $3,000 |
| Ed’s Nursery | $2,000 |
| Chase Bank (Mortgage) | $3,500 |
| Comcast | $200 |
| AT&T | $200 |
| SIMPLE IRA | $4,000 |
While I could identify legitimate business expenses related to pest control and fertilizing services, the inclusion of the mortgage, gym, and insurance payments highlighted a serious case of co-mingling. Upon further inquiry, the retiring admin revealed that the SIMPLE IRA contributions were personal, further complicating the situation.
Seeking Solutions
As I delved into these records in QuickBooks, I contemplated how to address this dilemma. The question loomed large: How do I correctly account for these non-business expenditures? Should I categorize them as an “Owner Draw,” or is there a more effective solution?
In my attempts to communicate these concerns with Liz and her former assistant, I encountered resistance. Their familiarity with the handwritten ledger system made them somewhat dismissive of the importance of separating personal and business finances.
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