Understanding Co-Mingling of Expenses: A Guide to QuickBooks for Business Owners

Navigating the world of Accounting Software can be daunting, especially for business owners who have relied on traditional methods for years. A recent experience highlighted the complexities that can arise when personal and business finances intertwine, presenting a challenge for effective Bookkeeping in QuickBooks.

A New Challenge

After a friend’s assistant/bookkeeper retired, she sought help transitioning from manual Bookkeeping to QuickBooks. Eager to learn a new skill, I accepted the opportunity. However, upon diving into the financial records, it became clear that I had stepped into a more complicated situation than anticipated.

The client, Liz, operates a gardening and landscaping business, and her business account appears to be the catch-all for both personal and professional expenses. A glance at their records revealed a troubling mix of transactions that should ideally remain separate.

For instance, a typical month’s expenditures included:

| 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 the payments to pest control, fertilizer, and nursery services can be classified as legitimate business expenses, items such as mortgage payments, utility bills, and personal IRA contributions indicate a major co-mingling issue.

Addressing the Issue

When I inquired about specific transactions, it became apparent that the SIMPLE IRA contribution was not an employer-backed payment but a personal contribution from Liz being paid through the business account. This raised a critical question: how should these mixed expenses be handled in QuickBooks?

While it may seem simple to insist that all personal expenses be removed from the business account, such a change can be difficult for clients who have grown accustomed to handling their finances in a particular way. The previous method of manually recording transactions without differentiation has led to this co-mingling issue.

Finding a Solution

So, what can be done to rectify this situation moving forward? Here are some strategies to consider:

1. Establish Clear Guidelines: Encourage clients to maintain distinct accounts for personal and business expenses. This distinction simplifies