Navigating Co-Mingling Issues in QuickBooks: A Case Study

Being called to help with a business’s financial organization can often feel like stepping into a labyrinth, especially when the previous Bookkeeping practices are a bit unconventional. This was the experience of a friend who, after their long-time bookkeeper retired, sought assistance in transitioning their records to QuickBooks. What began as a straightforward task quickly escalated into a complex situation involving co-mingled expenses.

In this case, the client, Liz, operates a gardening and landscaping business and had managed their financial records manually for about a decade. As I delved into the details, it became apparent that various personal expenses were being charged to the business account. We’re not talking about incidental costs; this included significant bills like mortgage payments, utility costs, IRA contributions, gym memberships, and even cable and phone bills.

As I began compiling the transactions for QuickBooks, I identified both legitimate business expenses and glaring personal charges. For instance, a typical month’s entries looked something like this:

• 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 the expenses for pest control, fertilizers, and nursery supplies seemed appropriate for a landscaping business, items like the mortgage and utility payments raised red flags. Notably, even the SIMPLE IRA contributions were identified as personal rather than employer contributions, paid directly from the business funds.

Faced with this financial muddle, the pressing question emerged: how should these mixed expenses be categorized in QuickBooks? To simplify matters, should I classify all personal transactions as “Owner Draws”?

To complicate matters further, when discussing these concerns with both Liz and her retiring assistant, they appeared puzzled or even dismissive of my inquiries. Their long-standing method of handling finances—recording everything in a handwritten ledger and passing it to an accountant—had left them largely unprepared for modern Accounting practices.

So, am I being overly cautious, or is this genuinely a significant issue? It seems clear that this is more than just a matter of Bookkeeping style; it’s about fundamental financial management.

To address these concerns effectively in QuickBooks, here are a few recommended steps:

1. **