Navigating Co-Mingling Issues: Best Practices for Accounting in QuickBooks

As businesses evolve, so too do their Accounting needs. Recently, I was approached by a friend who found herself in a challenging situation after her assistant/bookkeeper retired. She needed support to transition her gardening and landscaping business from traditional hand-written records to QuickBooks. Seizing the opportunity to expand my own skills, I jumped on board, only to quickly realize that this undertaking was far more complex than I had anticipated.

The primary concern that surfaced during this process was the co-mingling of personal and business expenses. In the past decade, the client, Liz, had been using her business account to cover numerous personal costs, which included her mortgage, utility bills, retirement contributions, and even gym memberships. These kinds of transactions can significantly complicate Accounting practices and tax reporting.

To give you a clearer picture of the situation, here’s a breakdown of a typical month in their financial records:

• Bob’s Pest Control: $1000
• Jill’s Fertilizing: $600
• Insurance Company (Home & Auto): $3000
• Ed’s Nursery: $2000
• Chase Bank (Mortgage): $3500
• Comcast: $200
• AT&T: $200
• SIMPLE IRA: $4000

As I began inputting these figures into QuickBooks, the stark contrast between legitimate business expenses and personal costs became evident. While expenses related to pest control, fertilizers, and nurseries fit the business model, many personal expenses—like home mortgages, cable bills, and personal phone bills—did not belong in a business context. Adding to the dilemma was the realization that Liz was using her business funds for her personal IRA contributions, which further blurred the lines between personal and corporate finances.

With this troubling discovery, I reached out to the retiring administrator for clarification on whether the SIMPLE IRA contributions were employer-provided. She confirmed that they were actually personal contributions made by Liz, using business funds. Faced with this situation, I sought guidance on how to appropriately reflect these expenditures in QuickBooks.

The challenge lies in deciding how to accurately categorize these personal expenses without compromising the integrity of the business’s financial records. Is it sufficient to simply record these personal costs as “Owner Draws” in QuickBooks? Or is there a more effective approach to managing these entries?

When I brought the matter to Liz and the