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

Transitioning to a new Accounting system can be both an exciting and daunting experience—especially for small business owners who have relied on traditional methods for years. Recently, I encountered a particularly challenging situation while assisting a friend who has recently taken over her gardening and landscaping business’s Bookkeeping after her assistant retired. Their method of Accounting had been painstakingly manual for a decade, and now, the shift to QuickBooks illuminated some critical financial practices that needed immediate attention.

The Challenge at Hand

As I began inputting their historical financial data into QuickBooks, I noticed an alarming trend. Liz, the business owner, was utilizing her business account to cover major personal expenses, including:

• Mortgage payments
• Utility bills
• IRA contributions
• Gym memberships
• Cable expenses

The records from their previous handwritten ledger showed transactions that included legitimate business costs alongside these personal expenses, creating a co-mingling issue that could complicate tax filings as well as the overall financial health of the company.

Identifying Legitimate Expenses

In reviewing the data, I categorized the legitimate business expenses. For instance:

| Vendor | Amount |
|—————————|———-|
| Bob’s Pest Control | $1,000 |
| Jill’s Fertilizing | $600 |
| Insurance Company | $3,000 |
| Ed’s Nursery | $2,000 |
| Total Business Expenses | $6,600 |

However, alongside these business transactions, I also found payments to creditors and services that had no direct connection to the business operations. Among these were:

| Vendor | Amount |
|—————————|———-|
| Chase Bank (Mortgage) | $3,500 |
| Comcast | $200 |
| AT&T | $200 |
| SIMPLE IRA (personal contribution) | $4,000 |

This mix of personal and business expenses raised a series of questions about how to appropriately account for these transactions in the new Accounting system.

The Dilemma: What to Do Next?

Given the complexity of the situation, I turned to the departing assistant for clarification on whether certain contributions, particularly to the SIMPLE IRA, were part of an employer’s match. Unfortunately, it was confirmed that these were personal contributions, again paid from the business account.

To address this co-mingling, I had a couple