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

Recently, I was approached by a friend whose assistant/bookkeeper had just retired, seeking guidance on transitioning to QuickBooks for their financial management. Having only handled Bookkeeping the old-fashioned way for the past decade, they found themselves at a crossroads. Feeling adventurous, I agreed to step in and help, but soon discovered that I was in over my head.

The client in question, Liz, has been utilizing her business account to cover a variety of personal expenses. These include significant items such as mortgage payments, utility bills, IRA contributions, gym memberships, cable subscriptions, and more. The business in focus is a gardening and landscaping venture.

To give you an idea of what these expenditures look like on a typical month’s ledger, here are some of the items charged to 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

As I began transferring these records into QuickBooks, it became apparent that legitimate business expenses like pest control and fertilizer purchases were intermingled with personal costs. Notably concerning were transactions related to mortgage payments, cable services, phone bills, and household insurance.

One specific example stood out: the SIMPLE IRA contribution was not an employer-sponsored expense but rather Liz’s personal contribution drawn from the business funds. This raises a significant issue of co-mingling personal and business finances, a practice that can complicate Accounting and tax filings.

So, what should I do in this situation? The most straightforward approach feels like it would be to classify these personal expenses as “Owner Draws” in QuickBooks, but I worry that simply doing that might overlook the complications of their Accounting history.

Attempts to discuss these practices with Liz and her retiring assistant were met with confusion and annoyance— they were accustomed to operating from a handwritten ledger without questioning these expenditures. They typically pass this information on to their accountant and leave the details of disentangling the financials to them.

The crux of the issue presents a dilemma: am I over-reacting to a common problem? Is there an effective