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

Recently, I had the opportunity to assist a friend whose bookkeeper had retired after a decade of managing Accounting by hand. My aim was to help them transition to QuickBooks, a process that quickly became more complex than I anticipated. The nature of the client’s business—a gardening and landscaping company—added an interesting dimension to the task.

Upon reviewing the financials, I discovered that Liz, the business owner, was utilizing her business account for a range of personal expenses. These included significant payments like her mortgage, utility bills, IRA contributions, gym memberships, and cable services. Such practices raise concerns about co-mingling business and personal expenses, which can complicate financial reporting and tax obligations.

Here’s a snapshot of the monthly transactions in question:

|Vendor |Amount |
|—————————-|——–|
|Bob’s Pest Control |$1000 |
|Jill’s Fertilizing |$600 |
|Insurance Company (Home & Auto)|$3000|
|Ed’s Nursery |$2000 |
|Chase Bank (Mortgage) |$3500 |
|Comcast |$200 |
|AT&T |$200 |
|SIMPLE IRA |$4000 |

From this example, it is clear that while expenditures on pest control, fertilizing products, and supplies from nurseries are legitimate business expenses, payments related to her home mortgage, personal utilities, and phone bill seem to indicate a significant co-mingling issue.

In my conversations with the retiring bookkeeper and Liz, I inquired whether the SIMPLE IRA contributions were part of a work-related plan. I was surprised to learn that this was indeed a personal contribution deducted from the business account. This raised a crucial question: how do I accurately record these mixed expenses in QuickBooks?

Unfortunately, when I sought clarification from Liz and the previous admin about separating personal from business transactions, they appeared either confused or irritated. Having relied on manual record-keeping for so long, they were accustomed to simply passing the records to their accountant without distinguishing between personal and business expenses.

So, what options do I have here? Should I categorize the personal expenses as “Owner Draws” in QuickBooks? While this might seem straightforward, it could invite scrutiny from accountants or tax authorities down the line.

It’s critical to address the situation proactively. Failing to separate