Addressing Co-Mingling of Personal and Business Expenses in QuickBooks

Navigating the intricacies of Accounting can be daunting, especially for those who have relied on traditional methods for years. Recently, I found myself stepping into this world while assisting a friend, Liz, who runs a gardening and landscaping business. With the retirement of her long-time assistant/bookkeeper, Liz was in need of transitioning her records into QuickBooks. While I was eager to learn, I quickly discovered that I was facing a significant challenge.

Unveiling Co-Mingling Issues

During the process of inputting her financial transactions into QuickBooks, it became evident that there was a considerable overlap between Liz’s personal and business expenses. Here’s a snapshot of what I encountered in the records:

• Legitimate Business Expenses:
• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600

• Ed’s Nursery: $2,000

• Personal Expenses:

• Chase Bank (Mortgage): $3,500
• Comcast: $200
• AT&T: $200
• SIMPLE IRA Contribution: $4,000 (treated as a personal contribution)

The distinctions were clear: while expenses related to pest control, fertilizing, and nursery supplies were valid business costs, the mortgage, utility bills, and even personal IRA contributions appeared to blur the lines between personal and business finances—an issue known as co-mingling.

The Dilemma of Managing Accounts

My inquiries regarding the SIMPLE IRA contribution revealed that it was not from an employer account, but rather Liz’s personal payment being processed through her business account. This led to a profound question: how should I categorize these transactions in QuickBooks? Should I simply classify them as an “Owner Draw” or take further action?

As I approached Liz and her former assistant about the discrepancies, their reactions were mixed. They seemed puzzled and somewhat irritated by my concerns. After all, they had been managing their Accounting by hand for over a decade, seamlessly handing it off to their accountant at year-end without breaking down the expenses in detail.

Finding a Solution

It’s natural to feel overwhelmed in situations like this, but it poses a crucial opportunity for Liz to streamline her finances moving forward. Here are a few strategies to consider when faced with similar co-mingling issues:

1. Separate Business and Personal Accounts: The first step involves clearly separating