How it starts
Nobody sets out to mix the money. The second company starts as a side line inside the first, with the same bank account and card, and by the time it has its own LLC and EIN the habits are set. A vendor has the wrong entity on file. The operating account is short on a Friday and the property LLC covers payroll.
Commingling is the mixing of money that belongs to different legal persons, whether two of your companies or one company and you, so that the records no longer show which money is whose. It is what the books look like when nobody recorded the loan.
An owner asked the QuickBooks Community in October 2020 how to record one business covering another's expenses, and the thread never got a definitive answer. Another asked in December 2023 about multiple businesses under one bank account and was told you end up reconciling QuickBooks against itself.
What it costs
The first cost is the reconciliation. Each company's bank feed now carries transactions that belong to the other, and the bookkeeper either codes them as the wrong company's expenses or parks them in an invented account. Neither balance sheet is right, and the reconciliation that should prove the cash figure proves nothing.
The second is the separation. A court deciding whether two of your companies were really separate looks first at whether the money was. We are not lawyers, and the cases turn on facts. Commingling still sits first on every list of what weakens the shield.
The third is the lender. A bank underwriting you looks at every entity you own together, in what it calls global cash flow, and an unexplained balance between two of them is a question for the meeting. How that review works is in global cash flow analysis for business owners.
The fourth is that you stop knowing which company makes money. If the operating company has quietly paid $61,400 of the property LLC's costs over fourteen months, the property LLC's profit is overstated by that much and the operating company looks like it is struggling.
The fifth is the bill for putting it right. NerdWallet puts bookkeeping clean-up at $1,000 and up, and a year of two entities through one account is well past the floor.
How to record it when it happens
A due to/due from account is a pair of balance sheet accounts that track money one of your companies owes another. Due from is an asset in the company that is owed. Due to is a liability in the company that owes. The pattern is the same every time: the company that paid records a due from, and the company that owed the bill records the expense and a due to.
Ridge Ops LLC paid Ridge Property LLC's $4,380 insurance premium in May, from the Ops bank account, because the insurer had Ops on file. Same owner, two files.
| File | Entry | Debit | Credit |
|---|---|---|---|
| Ops | Payment leaves the Ops bank | Due from Property $4,380 | Bank $4,380 |
| Property | Premium recorded where it belongs | Insurance expense $4,380 | Due to Ops $4,380 |
| Property | Settles in June | Due to Ops $4,380 | Bank $4,380 |
| Ops | Receives the settlement | Bank $4,380 | Due from Property $4,380 |
After the June transfer both balances are zero, Ops shows no insurance expense because it had none, and Property shows the premium in the month it was incurred. The mistake we see most is Ops coding the payment to insurance expense because that is what the bank feed said.
Common advice is to book the payment as an owner draw from the paying company and a capital contribution to the other. We would push back. It makes the money disappear into equity, it can never be settled, and if the two companies have different partners it is plainly wrong, because one set of partners has funded the other. Rent, management fees and loans between companies follow the same pattern, laid out in intercompany transactions explained for owners.
Personal money follows the same logic: if your own card paid $1,260 of Ops' supplies, Ops records the expense, credits an account for money owed to you, and reimburses you from the Ops account. Leaving it out understates Ops' costs.
The one-bank-account case
When two companies have shared one account for a year or more, recording each transaction properly is not realistic. The unwind is a cut-off rather than a rewrite.
Open the second account first. Then pick a cut-off date, usually the first of next month, and move every recurring payment and customer deposit to the account of the company it belongs to, starting with payroll. Third, have the bookkeeper total what each company paid on the other's behalf up to the cut-off, and what each deposited that belonged to the other. Fourth, book the net as one intercompany loan on the cut-off date. Fifth, write it down, with the amount, the date and how it will be repaid.
Back to Ridge. Over fourteen months Ops paid $61,400 of Property's costs and Property deposited $18,250 of Ops' customer checks. Property owes Ops $79,650. On the cut-off date Ops books a $79,650 due from Property and Property books a $79,650 due to Ops.
The other side of those entries is where it gets delicate. The $61,400 was expensed in Ops when it belonged in Property, so a full correction raises Ops' past profit and lowers Property's, and if those years are filed that is a conversation with your CPA first. The practical answer we see most is to book the loan as of the first day of the current year and let the CPA decide whether anything earlier needs amending.
The shared credit card is the same problem in miniature. Either each company gets its own card from the cut-off, or one company keeps it and rebills the other monthly with an intercompany invoice, which works but adds an entry every month.
What this method cannot do is undo the exposure for the years the accounts were mixed, or tell you whether the loan will ever be repaid. It draws a line, and what came before is documented as one number rather than fourteen months of noise.
Keeping it separate afterwards
After the cut-off the rule is one account and one card per entity, vendors billed to the right entity, and payroll run from the company the staff work for. Once a month the bookkeeper nets the due to and due from balances between each pair of companies and settles them with a transfer. The test takes a minute. The due from in one file and the due to in the other should be equal and opposite, and zero after the settle-up.
Navigator reads each QuickBooks Online file read-only and shows every company on its own and together, so a due from growing in one file sits beside the due to in the other. Any figure opens to show which company and which entry it came from. On the Pro plan, intercompany elimination removes the balances from the consolidated view automatically. If you are not sure how mixed your files are, the free accounting health check is a place to start.
Questions owners ask
Can two LLCs share a bank account?
A bank will usually let you, and nothing stops you. Every deposit and payment then belongs to one company and sits in the other's books, so neither file reconciles and the separation the second LLC was formed for is weaker. Open a second account and set a cut-off date; the unwind is one loan entry per pair of companies.
Is commingling funds between my own companies illegal?
No. What it does is weaken the liability shield an LLC exists to provide, because a court deciding whether two companies were really separate looks first at whether the money was. We are not lawyers, and the cases turn on facts. Every attorney we have worked with still puts commingling first on the list of what to stop.
How do I record one company paying another's expenses in QuickBooks Online?
In the company that paid, code the payment to a due from account for the other company, not to an expense. In the company that owed the bill, record the expense with a journal entry that credits a due to account for the payer. Settle by transferring the cash, which clears both balances.
Do I need a loan agreement between my own LLCs?
If the balance clears within a month or two, a note in the entry is enough. If it persists, write a short agreement stating the amount, the date, the rate if any and how it is repaid. That document is what a lender, a buyer or a court will ask for, and it keeps the balance a loan rather than a transfer.
Related
The entries for rent, fees and loans between your companies are in intercompany transactions explained for owners. Whether each entity needs its own QuickBooks file is answered in one QuickBooks file per LLC, or classes. Once the accounts are separate, managing several businesses without a spreadsheet is the rhythm that keeps them that way.
If you want to know how tangled your own files are before you start, the accounting health check is free: navigatorhq.ai/health-check.
Published . Last updated . Reviewed by a CFO on the Navigator team.