Navigating Co-Mingling Expenses in QuickBooks: A Guide for New Bookkeepers
Transitioning to a digital Accounting system like QuickBooks can be daunting, especially if you’re stepping in to assist a business that has relied on hand-written ledgers for years. Recently, I found myself in this very situation when a friend’s assistant/bookkeeper retired, and I was entrusted with the task of modernizing their Accounting practices.
The client, let’s call her Liz, operates a gardening and landscaping business. However, upon diving into the details, I quickly discovered a significant issue: Liz has been using her business account to cover a range of personal expenses. These expenditures include her mortgage, utilities, IRA contributions, gym memberships, and even cable bills—expenses that should not be mingled with business finances.
For context, here’s a glimpse of what a typical month looks like in her transactional records:
| Description | Amount |
|———————————-|———|
| 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 reviewing these entries in QuickBooks, it became glaringly obvious that personal expenses were being paid out of the business account alongside legitimate business expenses. While payments to pest control, fertilizer suppliers, and nurseries can be categorized as authentic business costs, those related to home mortgages and personal utilities raise a red flag regarding co-mingling.
When I asked the retiring admin about the SIMPLE IRA, I learned that this was actually Liz’s personal contribution, also charged to the business account. This compounding issue left me wondering about the most appropriate course of action moving forward.
Should I simply categorize these personal expenses as “Owner Draw” in QuickBooks? How should I handle this substantial mixing of business and personal finances? My attempts to discuss the matter with Liz and her former admin were met with confusion and annoyance, likely stemming from their long-standing practice of handling everything manually and deferring complex matters to their accountant.
Seeking Solutions
So, are my concerns valid? Absolutely. Co-mingling business and personal expenses complicates Accounting and can lead to significant financial mis
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