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

Recently, I encountered a challenging situation while assisting a friend in transitioning her gardening and landscaping business to QuickBooks. After her bookkeeper retired, she needed support in managing her financial records, which had been meticulously kept by hand for the past decade. I thought this was a great opportunity to sharpen my QuickBooks skills, but I quickly realized the complexities involved.

As I delved into the financial records, an alarming trend emerged: the business account was being used for a variety of personal expenses. Key expenditures included:

• Mortgage payments
• Utility bills
• IRA contributions
• Gym memberships
• Cable and phone services

To illustrate, consider a typical month of transactions from the business account:

| 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 |

While I could easily identify the legitimate business expenses, such as payments to pest control and nurseries, the inclusion of personal bills raised major concerns regarding co-mingling of funds. Particularly troubling was the fact that the owner, Liz, was utilizing business funds for personal contributions to her SIMPLE IRA—a situation that could potentially lead to significant legal and tax ramifications.

In trying to navigate this issue, I spoke with both Liz and her retiring assistant. Their responses reflected confusion and irritation over my inquiries. They were accustomed to simply recording all transactions in their hand-written ledger and leaving the final analysis to their accountant.

So, where do we go from here? How should this situation be addressed in QuickBooks? Should I categorize these personal expenses as “Owner Draws,” or is there a more appropriate resolution?

Key Considerations for Addressing Co-Mingling Issues

1. Establish Separate Accounts: It’s crucial for business owners to separate personal and business finances. Creating distinct accounts for each will simplify Bookkeeping and help prevent future co-mingling issues.

2. Categorize Appropriately in QuickBooks: For those occasional personal expenses, if they cannot be separated