Navigating Co-Mingling Issues in QuickBooks: A Guide for New Users

Recently, I ventured into the world of QuickBooks after a friend sought help with their gardening and landscaping business. Having relied on handwritten ledgers for over a decade, they were ready to embrace digital Accounting but found themselves at a crossroads when their assistant/bookkeeper retired. Eager to help, I jumped onto the opportunity, envisioning this as a chance to expand my own skills. However, it quickly became clear that I had stepped into a complex situation.

As I began to sift through the financial records, it became apparent that the client, Liz, was utilizing the business account for an array of personal expenses. Among these were significant payments for items such as:

• Mortgage
• Utilities
• IRA contributions
• Gym memberships
• Cable bills

This merging of personal and business finances is not only problematic, but it also raises serious questions about proper Accounting practices.

Understanding the Landscape of Co-Mingling

To illustrate what I found, consider these transactions from a typical month:

| Vendor | 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 |

While it’s clear that expenses like pest control and fertilizer are directly tied to the business, items related to home mortgage payments and utility bills reflect a significant co-mingling issue. Even contributions to a SIMPLE IRA, which I learned are personal contributions rather than employer contributions, are being paid from the business account.

Seeking Solutions for Co-Mingling Issues

The challenge now is determining how to manage these expenses within QuickBooks. Is it sufficient to categorize these personal expenses as “Owner Draws”? Until I can encourage Liz to untangle her personal and business finances, I’m wondering what the best practices are for accurately reflecting these transactions in the Accounting Software.

My inquiries into these matters have resulted in some resistance; both Liz and her retiring assistant seem baffled by these questions. They have a long-standing practice of recording everything in a handwritten ledger and passing it along to their accountant for a once-over.