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

Recently, I found myself diving into the world of QuickBooks to assist a friend with her gardening and landscaping business. After her bookkeeper retired, she sought help to transition from traditional handwritten Bookkeeping to a digital platform. Eager to learn, I accepted the challenge, but quickly realized that I had stepped into a complex situation.

The core of the issue revolves around a troubling practice known as co-mingling, wherein personal and business expenses are mixed within the same account. In this particular case, Liz, the business owner, has been using the business account to pay for various personal costs, including mortgage payments, utility bills, IRA contributions, gym memberships, and more.

Here’s a snapshot of some typical transactions from their business account:

• Bob’s Pest Control: $1,000 (business)
• Jill’s Fertilizing: $600 (business)
• Insurance Company (Home & Auto): $3,000 (personal)
• Ed’s Nursery: $2,000 (business)
• Chase Bank (Mortgage): $3,500 (personal)
• Comcast: $200 (personal)
• AT&T: $200 (personal)
• SIMPLE IRA: $4,000 (personal)

While expenses like pest control and fertilizers are undoubtedly legitimate business expenditures, the inclusion of personal costs such as mortgage payments and cable bills complicates things significantly.

Once I imported the record into QuickBooks, it became glaringly clear that these personal expenses were being charged to the same business account alongside authentic business transactions. To make matters more complex, I discovered that the SIMPLE IRA payments were personal contributions made from the business funds, rather than employer contributions, which is a crucial distinction.

So, what can one do in a situation like this? Simply asking Liz to segregate her expenses is easier said than done. My instincts told me that it might be best to categorize personal expenses as an “Owner Draw” in QuickBooks. However, I was met with resistance and confusion from both the owner and the retiring administrator when I tried to clarify these issues. They seemed accustomed to their traditional ledger system and were unsure of why I was raising these questions, as they typically left the sorting out of details to their accountant.

As I navigated this considerable challenge, I began to wonder: am I overreacting to a common practice