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

Recently, I found myself stepping into a situation that many aspiring QuickBooks users might encounter. A friend of mine needed assistance with transitioning their finances into QuickBooks after their long-time bookkeeper retired. For over a decade, they had been relying on a handwritten ledger system, which was now challenging to manage as their business was growing.

Eager to learn QuickBooks, I joined the team, only to quickly realize that I was facing a significant hurdle. The client’s business—a gardening and landscaping company—had been running its operations with some confusing Accounting practices. Notably, personal expenses were being routinely charged to the business account.

Upon reviewing the situation, it became clear that the owner, Liz, was paying for numerous personal expenses directly from the business funds. This included payments for her mortgage, utility bills, IRA contributions, gym memberships, and even her cable TV service. This blending of personal and business expenses raised a red flag—specifically, the potential for co-mingling funds, which can create significant Accounting challenges.

For instance, a typical month’s transactions might look like this:

• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Home & Auto Insurance: $3,000
• Ed’s Nursery: $2,000
• Chase Bank (Mortgage): $3,500
• Comcast: $200
• AT&T: $200
• SIMPLE IRA Contribution: $4,000

While it’s evident that payments to pest control, fertilizing, and nurseries are legitimate business expenses, the mortgage and various utility payments suggest a worrying degree of co-mingling. Even inquiring with the retiring office administrator about the SIMPLE IRA confirmed my concerns; it turned out that Liz was personally contributing to her IRA using business funds—not ideal.

So, what should one do when faced with this Accounting dilemma? The first step is to encourage the client to separate personal expenses from business transactions. However, demand may not yield the desired response; Liz and her team seemed perplexed and perhaps resistant to change after years of following their established method.

This raised questions about how to categorize these expenses in QuickBooks. Should those personal expenditures simply be marked as “Owner Draws”? Would that adequately reflect the reality of her financial practices without complicating their ledger further?

For anyone facing a similar issue, it’s essential to document