Navigating Co-Mingling Expenses in QuickBooks: A Guide for New Users

Transitioning to QuickBooks can be a daunting experience, especially when taking over from someone who has managed financial records by hand for years. Recently, a friend sought my help after her bookkeeper retired, and she found herself in need of QuickBooks assistance. Intrigued by the challenge, I agreed to step in but quickly realized how complex the situation was—one that many new users may encounter, particularly concerning co-mingling of personal and business expenses.

Understanding Co-Mingling of Expenses

In this particular case, the client, Liz, has been using her business account to pay numerous personal expenses, ranging from mortgage payments to gym memberships. While it’s common for small business owners to handle various expenses out of one account, it’s crucial to separate personal and business transactions to maintain clear financial records.

Here’s a snapshot of some recent transactions that Liz made from her business account:

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

From my analysis, it’s evident that legitimate business expenses exist, such as payments to pest control and nurseries. However, alongside these vital costs, Liz is also paying her mortgage, utility bills, and personal IRA contributions from the same business account. This brings forth serious co-mingling issues that could complicate accurate financial reporting.

The Challenge of Co-Mingled Records

During my discussions with the retiring bookkeeper, it became clear that the SIMPLE IRA payment was a personal contribution rather than a business expense. This further deepened my concerns about the integrity of the financial records. So, how can we address these co-mingled expenses effectively in QuickBooks?

Suggested Approach to QuickBooks Entry

1. Identify Owner Draws: Any personal expenses charged to the business account should be classified as “Owner Draws.” This will help keep the personal expenses separate from business-related costs in your records.

2. Communicate with the Client: It’s essential to have an open dialogue with Liz about the importance of distinguishing