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

Navigating the world of Accounting Software can be daunting, especially for small business owners who have relied on traditional Bookkeeping methods for years. One such scenario recently came to my attention when a friend sought assistance after their bookkeeper retired. They had been managing their financial records manually for over a decade, and now they needed to transition to QuickBooks.

As I stepped into this role with the aim of learning and growing, I quickly found myself confronted with a significant issue: co-mingling of personal and business expenses. The client, Liz, had been using her business account not just for legitimate business expenses, but also for major personal expenditures. This included payments for her mortgage, utility bills, retirement contributions, gym memberships, and more.

Here’s a glimpse of the typical expenses appearing in their monthly records:

• 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 it’s straightforward to identify legitimate business expenses such as pest control and fertilizers, items like the mortgage, utilities, and cable subscriptions raise concerns about inappropriate co-mingling of funds. Furthermore, the SIMPLE IRA payments, which were clarified to be personal contributions from Liz, were also being charged to the business account—this is typically not how such contributions should be handled.

As I delved deeper into the QuickBooks platform, it became evident that these personal expenses were blurring the lines between business and personal finances. This raises several key questions: How should these items be categorized in QuickBooks? Is it enough to label them as “Owner Draws,” or is there a more appropriate approach?

In conversations with Liz and the retiring bookkeeper, my inquiries were met with confusion and defensiveness. They seemed accustomed to their previous method of simply jotting down everything in a ledger, then passing it off to their accountant each year, leaving the detailed analysis to someone else.

So, what’s the best course of action here? Addressing co-mingling of funds is not just a matter of Bookkeeping convenience; it’s crucial for accurate financial reporting, compliance, and