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

Recently, I had the opportunity to assist a friend who was seeking help with their transition to QuickBooks after their long-time bookkeeper retired. With a quaint gardening and landscaping business, they had relied on handwritten ledgers for around a decade. As I took on this new project, I quickly realized that I was venturing into unfamiliar territory, particularly when it came to managing the financials.

The situation at hand revealed that the business owner, whom I’ll refer to as Liz, was utilizing the business account to cover personal expenses. Items typically associated with personal finances—such as mortgage payments, utility bills, IRA contributions, gym memberships, and cable costs—were all being charged to the same account used for her business transactions.

Here’s a snapshot of a typical month’s expenditures for Liz’s business:

| Vendor | Amount |
|—————————-|————|
| Bob’s Pest Control | $1,000 |
| Jill’s Fertilizing | $600 |
| Insurance (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 payments to vendors like pest control and nurseries clearly represent legitimate business expenses, the rest—particularly those related to personal obligations—pose a significant issue of co-mingling funds.

When I inquired about the SIMPLE IRA contributions, I found out they were not employer-sponsored, but rather personal contributions made directly from the business account. This raised red flags for me about the implications of these transactions and how they could be managed within QuickBooks.

So, what should be done in situations like this? Is there a way to accurately account for these mixed expenses without demanding immediate separation from the client’s existing practices?

Addressing Co-Mingling in QuickBooks: Steps to Consider

1. Identify Personal Expenses: As you import transactions into QuickBooks, categorize items that are clearly personal versus those that are business-related.

2. Owner Draw vs. Expense: For personal expenditures made from the business account, consider classifying these transactions as “Owner Draws.” This indicates that the funds were taken out for personal use and