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

When you’re stepping into the world of Bookkeeping, especially with a legacy where manual records have been the norm, it can feel like you’re trying to navigate through a maze without a map. Recently, I encountered a client in just such a situation. After the retirement of her long-time assistant and bookkeeper, Liz found herself in need of a knowledgeable hand to help transition her business records to QuickBooks—a process that quickly revealed some significant challenges.

Identifying the Problem

Liz operates a gardening and landscaping business and had been managing her records by hand for over a decade. After accepting the job, I soon discovered that many of her personal expenses were being pulled from her business account. This included major items like mortgage payments, utilities, and even gym memberships, leading to a blending of personal and business finances that raised immediate concerns.

A Typical Month’s Transactions

In reviewing the transactions, we identified various legitimate business expenses, such as payments for pest control and fertilizers. However, many other charges seemed clearly personal, including:

• Mortgage Payment (Chase Bank) – $3,500
• Utilities (Comcast) – $200
• Phone (AT&T) – $200
• Personal IRA Contribution (SIMPLE IRA) – $4,000

What became evident was that Liz’s business account was not just for business operations; personal items were using the same financial resources, which is not just poor, it poses significant tax complications.

Addressing the Co-Mingling Issue

Upon further discussion, I asked the retiring assistant about the IRA contribution. To my surprise, she clarified that this was an individual contribution from Liz, made through the business account, indicating a lack of clarity about the purpose and boundaries of business funds.

So, what’s the best approach to account for these mixed expenditures in QuickBooks? While my first instinct was to urge Liz to separate her personal and business accounts, it quickly became clear that this was a more complex situation than it appeared.

Finding a Solution

1. Categorization: All personal expenses can be categorized as “Owner Draws” in QuickBooks. This means you can separate these transactions out while still keeping track of the overall finances.

2. Educating the Client: It’s vital to explain the implications of co-mingling funds not only for record-keeping but also for tax liabilities. This might