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

Dealing with financial records can sometimes be a daunting task, especially when transitioning from traditional, hand-written ledgers to modern Accounting Software like QuickBooks. Recently, I encountered a unique situation while working with a client, Liz, in the gardening and landscaping industry. With a retiring assistant who had managed the books manually for over a decade, the challenge of properly categorizing expenses became evident.

As I delved deeper into the financial details, it became clear that Liz had been using her business account to cover an array of personal expenses. Items such as her mortgage, utility bills, IRA contributions, gym memberships, and even cable services were all debited from this single account. It’s crucial to recognize the implications of co-mingling personal and business finances, as this can lead to significant complications during tax season and can obscure the true financial health of the business.

Understanding the Financial Landscape

To provide context, let’s take a look at a snapshot of typical monthly expenses recorded in QuickBooks:

| 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 payments to vendors like Bob’s Pest Control and Jill’s Fertilizing clearly reflect valid business expenses, the inclusion of payments for a home mortgage, personal insurance, and utility services raises a red flag. Moreover, what seemed like a legitimate SIMPLE IRA contribution turned out to be a personal deposit from Liz, further complicating the situation.

Determining the Best Course of Action

As I navigated these financial waters, I found myself pondering how to best categorize these expenses within QuickBooks. Should I simply mark the personal costs as “Owner Draws,” or is there a better way to address this substantial co-mingling issue?

Despite my intentions to seek clarity from Liz and her retiring admin, my queries were met with confusion and mild irritation. They’ve grown accustomed to the simplicity of the handwritten ledger system, wherein everything was recorded without distinction between personal and business transactions.