Navigating Co-Mingling Expenses in QuickBooks: A Newcomer’s Challenge

Recently, I took on a fascinating project: assisting a friend who was transitioning from manual Bookkeeping to QuickBooks after the retirement of their long-time assistant. This friend, Liz, has been diligently managing a gardening and landscaping business but had relied on hand-written records for the past decade. With the new changes, I thought it would be a great opportunity to expand my skills in QuickBooks.

However, as I delved into the business’ financials, I quickly recognized that I was facing a significant challenge. Through my review, it became very apparent that personal and business expenses were being paid from the same account—something known as co-mingling.

Understanding the Co-Mingling Problem

In Liz’s case, typical monthly transactions included payments for various business-related services and tools alongside significant personal expenses. The list featured invoices from:

• 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 the charges related to pest control, fertilizing, and nursery supplies were clearly business expenses, items like mortgage payments, utilities, and personal IRA contributions raised significant red flags regarding proper Accounting practices.

In discussions with the retiring bookkeeper, I learned that the SIMPLE IRA contribution, while billed to the company’s account, was a personal contribution made by Liz—an important detail that further underscored the issue at hand.

Seeking a Solution

Being new to the world of QuickBooks, I found myself grappling with how to handle these transactions appropriately. I want to ensure accuracy in the accounts without alienating my client during this transition.

One potential remedy I considered was categorizing these personal expenditures as “Owner Draws.” This would clarify the distinction between the business’s operational expenses and personal withdrawals. However, I remained concerned that simply making that adjustment might not fully address the underlying issue and could lead to complications down the line.

Moreover, when I broached these concerns with Liz and her former assistant, they appeared bewildered, perhaps annoyed, by my inquiries. Their established method of managing finances—with everything recorded in a manual ledger—had been their norm for years, and my questioning