Addressing Co-Mingling Issues: Best Practices for Managing Business and Personal Expenses in QuickBooks

Managing business finances can often be complicated, especially when personal and business expenses intermingle. A recent experience highlights some common pitfalls and offers insights into how to navigate these challenges effectively.

Background of the Situation

Recently, a colleague approached me for assistance in transitioning her company’s Bookkeeping to QuickBooks after her long-time assistant/bookkeeper retired. The business, a gardening and landscaping service, had been maintaining financial records manually for the past decade. Although I had limited experience with QuickBooks, I took on the role, eager to learn and contribute.

It quickly became clear that I was faced with significant issues; many personal expenses were being charged to the business account. Items like mortgage payments, utility bills, IRA contributions, and even gym memberships were all mixed in alongside legitimate business-related expenses.

The Details

While reviewing a typical month’s transactions, the disparity stood out starkly:

• 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

Upon further examination, it became apparent that while expenses like pest control and fertilization directly supported the business, the mortgage, insurance, and cable charges did not belong in the business financials.

Identifying Co-Mingling Issues

Co-mingling, the practice of mixing personal and business finances, can lead to serious Accounting issues. In this case, the SIMPLE IRA contribution revealed that not all payments recorded as business expenses were actually related to the business. This commingling could lead to complications during tax season or when trying to assess the true profitability of the business.

Moving Forward: What Should Be Done?

Faced with this dilemma, my first thought was to advocate for separating personal and business finances to maintain a clear record. However, the client and the retiring assistant appeared confused and somewhat annoyed by my inquiries. They were accustomed to recording everything manually and then passing it to their accountant for sorting.

Suggested Solutions

1. Establish Clear Boundaries: Encourage the client to maintain separate business and personal accounts.