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

Recently, a friend of mine enlisted my help to transition from manual Bookkeeping to QuickBooks after their assistant/bookkeeper retired. Having little experience with the software myself, I accepted the challenge, eager to learn. However, I quickly found myself confronting a significant hurdle: the client’s co-mingling of personal and business expenses.

The client in question, Liz, operates a gardening and landscaping business. For the past decade, she and her former bookkeeper maintained financial records by hand, which presented a unique challenge once I began transferring everything into QuickBooks.

As I delved into the records, it became apparent that Liz was utilizing her business account for various personal expenditures, including:

• Mortgage payments
• Utilities
• IRA contributions
• Gym memberships
• Cable and phone bills

In contrast, legitimate business expenses such as payments for pest control, fertilizer, and nursery supplies seemed well-documented. However, the blending of personal and business transactions raised significant concerns.

Take a look at a sample month’s expenses that Liz incurred:

| Expense | 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 |

The entries above illustrate how both business and personal expenses were paid from the same account. While some costs, like pest control and nursery supplies, are undeniably business-related, items like the mortgage, insurance, and personal contributions to her IRA pose a significant co-mingling issue.

To clarify the matter, I inquired whether the SIMPLE IRA contribution was an employer-sponsored contribution. Instead, I learned it was Liz’s personal contribution, further complicating the Accounting situation.

My dilemma became clear: how should I accurately record these transactions in QuickBooks? Should I categorize these personal expenses as “Owner Draws”? Simply putting everything into the business ledger doesn’t appear to be a viable solution.

Attempts to discuss these concerns with Liz and her former assistant yielded mixed reactions; they seemed perplexed by my inquiries and were accustomed to their previous method of record-keeping.