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

In the world of small businesses, particularly those run by individuals who have managed their finances without formal Accounting Software, challenges can arise when it comes to proper expense tracking. A recent experience I had sheds light on this common hurdle and offers insights on how to effectively handle the situation.

The Challenge of Transitioning to QuickBooks

Recently, I was contacted by a friend whose assistant/bookkeeper had retired. They were in need of assistance transitioning to QuickBooks after maintaining their financial records manually for nearly a decade. I jumped at the opportunity to learn more about QuickBooks and help them streamline their Bookkeeping processes.

However, upon diving into their financials, I quickly realized the complexities involved and felt somewhat overwhelmed by the situation. The business in question is a gardening and landscaping operation run by Liz, whose personal expenses had been pooled with business expenditures, leading to a potential co-mingling issue.

Understanding Co-Mingling in Business Finances

To illustrate the problem, consider the following examples of monthly expenses recorded in their ledger:

• 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 (personal contribution): $4,000

From this list, it’s evident that while expenses related to pest control, fertilizing, and nursery purchases are legitimate business costs, others—such as home mortgage payments, utility bills, and personal IRA contributions—raise red flags as they suggest serious co-mingling of personal and business finances.

The Dilemma of Record Keeping

As I began inputting these transactions into QuickBooks, I felt a need to address this blend of personal and business expenses. Traditional Accounting suggests that personal costs should not be paid with a business account; doing so complicates financial health assessments and tax filings.

When I inquired whether Liz’s SIMPLE IRA contributions were employer-sponsored, the retiring assistant confirmed they were personal contributions made via the business account. This discovery left me pondering the most appropriate way to manage these mixed expenses in QuickBooks.

Finding a Solution

So, what’s the best approach