Navigating Co-Mingling Issues in QuickBooks: A Guide for Business Owners

Introduction

When transitioning from manual Bookkeeping to digital Accounting Software like QuickBooks, business owners often face unique challenges. One such challenge is the co-mingling of personal and business expenses. Recently, I was approached by a friend who needed assistance in managing their landscaping business in QuickBooks, and what I discovered raised several important questions about Accounting practices.

The Background

After ten years of managing records by hand, my friend Liz’s business faced a new era of digital Bookkeeping with the retirement of her assistant/bookkeeper. Eager to help, I agreed to take on the task, confident that I could familiarize myself with QuickBooks. However, I soon found myself navigating murky waters.

As I delved into the transaction records, it became painfully clear that a significant number of Liz’s personal expenses were being paid from the business account. Expenses like mortgage payments, utility bills, gym memberships, and even IRA contributions typically belong in a personal budget, not a business ledger.

A Snapshot of the Situation

To illustrate the complexity of the financial situation, let’s look at a typical month’s transactions:

| Vendor | Amount |
|—————————|———|
| 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 |

Reviewing these transactions highlighted a distinct co-mingling issue. While expenses related to pest control, fertilizing, and nurseries were clearly business-related, personal expenses, such as home mortgages and cable bills, posed a significant concern.

The Co-Mingling Dilemma

Upon further inquiry, I learned that the SIMPLE IRA contribution was also personal, funded from the business account, further blurring the lines between personal and business finances. Faced with this reality, I found myself at a crossroads: What is the best way to address and rectify this?

1. Identify Personal vs. Business Expenses

The first step in addressing the co-mingling issue is to accurately classify expenses. Genuine business expenditures should remain in the business account, while personal costs