Navigating Co-Mingling of Funds in QuickBooks: Solutions and Insights

When stepping into a new Bookkeeping role, especially one that involves transitioning from traditional methods to modern software like QuickBooks, it’s not uncommon to encounter a few challenges along the way. Recently, I had the opportunity to assist a client, Liz, in modernizing her gardening and landscaping business’s financial practices after her long-time bookkeeper retired. This experience revealed some critical issues related to co-mingling of funds that warrant further discussion.

Understanding the Co-Mingling Dilemma

Liz and her team had relied on manual Bookkeeping for over a decade, recording transactions in a handwritten ledger. As I began importing their data into QuickBooks, a significant pattern emerged: a substantial number of personal expenses were being paid from the business account. The list of transactions included not only legitimate business expenses like pest control and fertilizer but also personal bills such as:

• Mortgage Payments
• Utilities
• Gym Memberships
• IRA Contributions
• Cable and Phone Services

This overlap in expenses poses serious Accounting challenges, as it complicates financial reporting and can potentially create tax issues.

The Reality of Co-Mingled Expenses

In QuickBooks, all transactions were being pulled from the same business account, mixing personal and business finances. For context, a snapshot of a typical month included entries like:

• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Home Insurance: $3,000
• Chase Bank (Mortgage): $3,500
• Comcast: $200
• SIMPLE IRA Contribution: $4,000

While the first three entries correctly reflect essential business expenditures, the inclusion of the mortgage, gym, and other personal payments signifies a co-mingling issue that needs addressing.

Finding a Path Forward

Upon discussing these matters with the retiring admin, it became clear that the SIMPLE IRA contribution was Liz’s personal investment, also charged to the business account. My primary concern now is how to accurately reflect these transactions in QuickBooks without demanding a complete overhaul of Liz’s financial practices.

What to Do Next?

While it may be tempting to categorize all personal expenses as “Owner Draws” in QuickBooks, this isn’t necessarily the best course of action. Here are a few steps to consider moving forward:

1. Open a Dialogue with the Client: It