Navigating Co-Mingling of Personal and Business Expenses in QuickBooks

Recently, a friend of mine faced a challenge when their long-time bookkeeper retired. The friend, Liz, had been managing her gardening and landscaping business by hand for over a decade and needed assistance transitioning to QuickBooks. I jumped at the opportunity, believing it would be a great learning experience. However, I quickly found myself in a complex situation that required more than just basic QuickBooks knowledge.

As I started entering transactions into QuickBooks, it became glaringly obvious that Liz had been using her business account for a variety of personal expenses. These included significant payments like her mortgage, utilities, IRA contributions, gym memberships, and cable bills.

To illustrate, here’s what a typical month’s transactions looked like:

| Transaction | Amount |
|———————————|———-|
| 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 |

In reviewing these entries, I identified that while payments to pest control, fertilizer, and nursery suppliers are undoubtedly legitimate business expenses, the payments related to Liz’s home and personal life raise substantial co-mingling concerns.

When I inquired whether the SIMPLE IRA was an employer contribution, the retired bookkeeper informed me it was, in fact, Liz’s personal contribution — yet, it was charged to the business account.

This situation left me pondering how to appropriately address these mixed transactions. Should I merely classify these personal expenditures as “Owner Draw” in QuickBooks, or is there a broader issue at play that needs resolving?

Upon discussing the matter with Liz and her previous assistant, I seemed to create confusion and perhaps a touch of annoyance. They were accustomed to simply recording everything by hand and allowing their accountant to consolidate it all later.

Am I overreacting to this potential co-mingling issue? Is it really as serious as I believe it to be? If it is a concern, what’s the best approach to accurately account for these discrepancies in QuickBooks?

Advice for Accounting for Co-Mingling Issues

1. Open a Dialogue: Begin with