Navigating Co-Mingling Issues in QuickBooks: A Case Study

When it comes to managing a small business, keeping accurate financial records is essential. However, what happens when personal expenses start intertwining with business accounts? That’s the conundrum I recently faced when I was brought in to support a landscaping and gardening business that had operated with manual Bookkeeping for over a decade.

The Background

After a close friend’s bookkeeper retired, they enlisted my help to transition their Accounting practices into QuickBooks. While I was eager to broaden my knowledge, I soon found myself in a more complex situation than I had anticipated.

My client, Liz, had been using her business account to cover personal expenses such as her mortgage, utility bills, gym memberships, and even IRA contributions. Previously, these transactions were recorded in a handwritten ledger, blurring the lines between personal and business income and expenditures.

A Snapshot of Monthly Expenses

To illustrate the scope of the problem, let’s take a look at a typical month’s expenses for the business:

• 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 entries such as pest control and fertilizing services are legitimate business expenditures, several costs—particularly the mortgage, cable, and personal insurance—raise a red flag regarding the co-mingling of funds.

The Quandary

Upon investigating these entries in QuickBooks, it became evident that the business account was being used for personal expenses as well. For instance, when inquiring about the SIMPLE IRA contribution, I discovered that it was indeed Liz’s personal contribution, not an employer contribution, and was mismanaged in the business accounts.

This presents a pressing question: What’s the best approach to address this kind of financial co-mingling?

Seeking Solutions

While I considered a straightforward answer might be to reclassify these personal expenses as “Owner Draws” in QuickBooks, I also wanted to ensure that this method would accurately reflect the business’s financial situation. The challenge was compounded by the fact that both Liz and the retiring assistant seemed unaware of the implications of their actions