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

In the world of small business Accounting, maintaining clear boundaries between personal and professional expenses is crucial for healthy financial management. Recently, I encountered a significant co-mingling issue while assisting a friend in transitioning her gardening and landscaping business to QuickBooks. After her long-time assistant/bookkeeper retired, she sought help to modernize her Accounting practices, and I stepped in, eager to learn the ins and outs of this popular software.

Upon delving into their records, it became evident that the business account was being used for various personal expenses—a situation that raised some serious red flags. Liz, the business owner, had been paying for her mortgage, utilities, gym memberships, and even IRA contributions directly from her business account, blurring the lines between personal and business finances. The team had maintained their records manually for over a decade, which added another layer of complexity to the transition.

To illustrate the situation, here’s a snapshot of a typical month’s expenses recorded:

| Vendor | Amount |
|———————|——–|
| Bob’s Pest Control | $1,000 |
| Jill’s Fertilizing | $600 |
| Insurance Company | $3,000 |
| Ed’s Nursery | $2,000 |
| Chase Bank (Mortgage)| $3,500 |
| Comcast | $200 |
| AT&T | $200 |
| SIMPLE IRA | $4,000 |

While the expenses linked to pest control, fertilizing, and nursery supplies clearly align with business activities, expenses like the home mortgage, utilities, cable, and insurance are indicative of co-mingling issue—a practice that can complicate Accounting and tax reporting.

After speaking with Liz’s retiring administrator, I discovered that even the SIMPLE IRA contributions were personal, further muddling the financial waters. This situation prompted important questions: How should I handle these mixed expenses in QuickBooks? Should I classify personal expenditures as “Owner Draws,” or is there a more structured approach?

When discussing these concerns with Liz and her former admin, I was met with frustration and confusion. They’ve long relied on manual ledgers, passing the collected data off to an accountant without deep scrutiny of the details.

So, what’s the best path forward for addressing co-mingling of expenses in QuickBooks? Here are a few strategies to consider:

1. Separate Accounts: Urge the