Navigating Co-Mingling Issues in QuickBooks: A Guide for New Users

Transitioning from manual Bookkeeping to a digital platform like QuickBooks can be daunting, especially when you’re faced with the complexities of financial co-mingling. If you’ve recently taken on a Bookkeeping role for a business that has operated solely by hand for years, you’re not alone in experiencing this challenge.

Understanding Co-Mingling: A Real-World Example

Take the scenario of a gardening and landscaping business transitioning to QuickBooks. The owner, let’s call her Liz, has a history of paying for both business and personal expenses from her company’s account. This includes essential expenses like mortgage payments, utility bills, and even gym memberships, alongside legitimate business costs such as vendor payments for pest control and landscaping supplies.

For a glimpse of what her Accounting ledger might look like, consider the following entries:

• 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

As you can see, legitimate business expenses are mixed with personal charges, creating a co-mingling issue that complicates Accounting and financial clarity.

Identifying the Layers of Complexity

As you delve into QuickBooks, it becomes clear that while business-related expenses can be categorized appropriately, the personal expenses muddy the waters. The entry for Liz’s personal IRA contributions, for instance, should not be recorded through the business account but is currently being treated as a business expense.

When navigating this rocky terrain, it’s essential to recognize the difference between business and personal transactions.

Seeking Clarity Amid Confusion

If you’re met with resistance or puzzlement when questioning these expenses, it’s important to understand that Liz and her retiring admin are accustomed to their old system. They have relied on a hand-written ledger without much scrutiny, passing along records to an accountant who consolidates everything.

So, what can you do? Here are a few steps to consider:

1. Separate Personal and Business Expenses: This is crucial. Encourage Liz to maintain a distinct separation of her personal and business finances. This not only simplifies Accounting but also upholds clarity in financial reporting.

2. Utilize Owner Draws: For personal expenses that have