Managing Co-Mingled Expenses in QuickBooks: A Guide for Business Owners

Navigating the world of Accounting Software can be daunting, especially for those transitioning from traditional methods. A close friend recently encountered this challenge after their long-time assistant/bookkeeper retired. With a decade of Bookkeeping experience conducted by hand, they decided it was time to switch to QuickBooks. I volunteered to assist, excited to take on the new opportunity. However, I soon discovered the complexity of their financial situation was far more profound than I had anticipated.

The business in question is a gardening and landscaping enterprise, and upon reviewing their records, I found a troubling pattern: personal expenses were being paid through the business account. A detailed look at their monthly expenses revealed a mix that raised some red flags:

• 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 expenses for pest control, fertilizer, and nursery supplies are clearly business-related, payments like the mortgage, utilities, and various personal subscriptions warrant a closer examination. What’s more concerning is that the SIMPLE IRA contribution was identified as a personal input rather than an employer obligation.

This situation raises critical questions about how to accurately categorize these expenses in QuickBooks. Should personal expenditures be classified as “Owner Draws,” or is there a better method to address this co-mingling of accounts without causing friction between myself and the business owner?

Attempts to discuss this with both the owner and the former assistant often met with confusion and mild annoyance. They had grown accustomed to their manual Accounting system and handed everything off to their accountant without a second thought. The shift to QuickBooks not only requires technical know-how but also a deeper understanding of proper Accounting principles.

Given this context, here are some steps to consider for managing co-mingled expenses effectively:

1. Separate Personal and Business Accounts: The first and most crucial step is to encourage the business owner to maintain distinct accounts for personal and business expenses. This separation simplifies accounting and ensures compliance.

2. Categorizing Expenses Properly: For now, expenses that are clearly personal should be classified as “Owner Draws” in QuickBooks