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

Transitioning to modern Accounting Software can be daunting, especially for those accustomed to traditional methods like hand-written ledgers. A friend recently shared their experience after taking on the financial management of a gardening and landscaping business through QuickBooks. The challenge? A significant overlap between personal and business expenses, commonly referred to as co-mingling.

The Challenge of Co-Mingling

Upon starting, my friend discovered that the client, Liz, was using the business’s bank account to cover various personal expenses. This included sizable payments such as mortgages, utilities, IRA contributions, and even gym memberships. For a business that operates mainly through services like pest control and fertilization, this mixed approach to finances can complicate Accounting practices immensely.

A Peek Into the Financial Records

Here is an example of a typical month’s transactions that were processed through the business account:

• 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 charges for pest control, fertilizing, and nursery supplies are undeniably legitimate business expenses, items like the mortgage, cable, and phone bills raise red flags. Notably, the SIMPLE IRA contribution was a personal investment made from the business funds rather than an employer contribution, further complicating the financial landscape.

Finding a Solution in QuickBooks

Faced with this conundrum, the question looms: how should these mixed expenses be accounted for in QuickBooks? The options seem limited, yet vital for maintaining accurate records and ensuring compliance.

Isolating Personal Expenses

One practical approach is to categorize personal expenses as “Owner Draws” in QuickBooks. This method separates personal transactions from business records, providing clarity when preparing financial statements. However, there’s a notable challenge: Liz and her retiring assistant seemed unperturbed by this co-mingling of funds, having relied on their informal record-keeping for years without issue.

Engaging the Client

Navigating these waters requires tact and communication with Liz. It’s essential to explain