QuickBooks Chaos to Clarity Case Study

Messy Books, Real Fixes, No Fluff. This episode isn’t theory—it’s what bookkeepers really deal with. In this episode, our resident Bookkeeping Mensch, Paul  Rosenblum, shares the chaos of a real client’s finances: seven credit cards, tangled business and personal transactions, and even a surprise closed bank account with missing rent payments. Unlike past episodes that offer broad tips, this one gets into the gritty details of how he actually solves these problems using both traditional and unconventional QuickBooks methods. He highlights the importance of client communication, the reality of adjusting workflows on the fly, and why he’s now focusing on respectful, high-quality clients

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Transcript

Episode 61

As I write this, it’s now the last weekend in June. I’m well into my ‘summer project mode’ as discussed in the last episode. Yes, I am doing the monthly bookkeeping for my clients, and after cutting down on the difficult clients, slow payers, suffering businesses who really can’t afford a bookkeeper, I am able to work smarter and more efficiently.  Today, I will be talking about a project that I mentioned in the last episode with more detail about how transactions are entered into the desktop edition of QuickBooks. Happy belated July 4th!  I’m Paul Rosenblum. 

Before I begin, if you’d like to contribute to this podcast, please look in the show notes.  You’d be getting episodes two days earlier every time a new episode comes out. And don’t forget to drop me a line a Bookkeepermensch@gmail if you want to say hi or if you have any episode ideas. 

With that said, let’s talk about a client who I am working on for multiple years of bookkeeping.  2022 was just filed and now I am about half-way finished with 2023.  As an overview, this is a client who travels quite frequently and has had two businesses (in 2023 now just one), 7 credit cards, all being used for business and personal, and even the mainly business credit cards are being paid out of the personal bank account. To add to the puzzle, credit cards are frequently lost and new credit cards are issued.  On the bank website, the main number of the account shows, but on the statement, the number of the card changes. So, every few months, I am changing the labeling of the credit card in QuickBooks so at least for a while, the books reflect the actual card number. Cards that are mostly used for personal expenses are paid for by the business. Hence, the jig saw puzzle scenario. And all the pieces are fitting together with no leftover ones!  

This episode is for both business owners and bookkeepers. I am going to take you through the specifics steps that I use to try and get the books accurate, and this involves the client.  Sometimes more than the client wants to get involved.  But this particular client, unless he is traveling, gets back to me very quickly and is being very helpful. 

From a bookkeeping standpoint, I think the bank accounts should be entered first. The reason for that is all the payments to the credit cards will show up in bank statements.  If, at the end of the year, there are missing payments from credit cards, it’s probably because they are being paid by a bank account that you are not tracking in the books, such as a personal bank account. Talking about bank accounts -- why don’t you track a personal bank account in the business books?  The simple reason is that a personal account should be used 100% for personal expenses – that is -- nothing that has to do with the business. If, however, a personal account is being used for business, how does a bookkeeper deal with that?  One way is a little unconventional in terms of accounting.  Just create a bank account in QuickBooks and enter all transactions just like any other bank account.   Personal expenses would go to an Equity account called “Owners Draw” or “Personal Expenses” (subaccount of Owners Draw), or if a corporation, the account would be “2025 Distributions”, for an example.

   The business transactions would be in the appropriate business category. At the end of the year, whatever the balance in that bank account is reconciled to, it would have to be adjusted to a zero balance, since it’s not a business account.  This is where general journal entries come into play. You would either debit or credit the bank account to show a zero balance and either debit or credit an Equity account to counterbalance the same amount. The reason is that you do not want to show a balance of a personal bank account as an asset of the business. In my experience, there’s a low percentage of bookkeepers who know that. So, the accountant or CPA does it if they catch it at all. 

If, when entering the transactions from the personal bank account, you run across business credit card payments, then you can just enter them directly into the credit card account like you would a credit card payment from a business bank account. 

If you choose this method as a bookkeeper or if you are doing your own bookkeeping as a business owner, remember to adjust the personal bank account to zero at the end of the year. 

I use that method in relatively rare cases.  The reason is that a personal account might have business transactions in it, but 90% of the transactions are truly personal. And entering all those personal transactions is a lot of work and extra time and expense for the client, as well as occasionally not knowing what some expense is and I ask the client, and they become embarrassed and laugh and say, ‘Just put it under personal’. I never want to embarrass a client.  

The other method is more traditional accounting. Rather than entering the entire personal bank account transactions every month, I have the client download a PDF file of the bank statement and highlight only the business transactions, or I will send the client a spreadsheet for the purpose of entering only the business transactions so that I can enter those manually in QuickBooks desktop or QBO (QuickBooks Online).  The entry in accounting would be made by using a general journal entry, and it would be a Debit to the business expense and a credit to a subaccount of the Equity account called “Owners Capital” called “Additional Capital for business expenses on CC”.  I’d make one general journal entry for each transaction.  It’s a slower process, but it’s the more traditional way of entering that information. 

This client closed a bank account without telling me and when I thought I was almost finished with 2021, I discovered that there were missing rent transactions.  I asked him if he paid rent every month, and he said he did.  By asking him the right questions, I found out that he closed a bank account with business expenses in it that was not showing up on the bank’s website..   I made him go to the bank and have them run statements from microfilm or whatever they needed to do.  The moral, NEVER close a bank account or a credit card account with asking your bookkeeper first. 

With this particular client who travels a lot, rather than entering subaccounts like “Travel Meals” or “Airfare” or “Hotels”, I’ll have subaccounts of the Travel category by adding the places where they have traveled to on business.  So, subaccounts like “Paris Trip”, “London Trip”, “Ireland Trip”, will count as travel expenses on the tax return, but will cut down on the time looking up every foreign name of every place that the client went to. 

As a business owner, it’s important to separate your business expenses from your personal expenses for your bookkeeping process, but it’s equally as important for the IRS.  They don’t like to see too many personal transactions mixed in the business books. In this mixing of personal and business transactions, one of the more important categories is meals.  Business meals VS personal meals. If you don’t have receipts, how does a business owner remember who they were with? A personal credit card for personal expenses, and a business credit card for business expenses.  That’s how. 

I have two projects for two clients who are in the same field, and yes, I find out that they know each other. As I get one year done on one client, I’m getting the same year done with the other client. 

Someone who is just starting out in bookkeeping really doesn’t know much about what I’ve been talking about in this episode. They do the data entry straightforward.  A meal is a meal and airfare is airfare. All business. If a bookkeeper isn’t sure about a transaction, it should go in the ASK the Client category.  The client will know, and they should fill in the spreadsheet that the bookkeeper sends to them with questions.

I am going to start two new projects this week – the first is a client who started a second company totally different from his first.  He has been in start-up mode (listen to episode #1), and he has sent me spreadsheets of all of his expenses so far.  He made his first sale just a week or two ago but hasn’t gotten paid yet.  So, everything I will enter for the past year are all Asset accounts called “Startup or Organizational Expenses”.  The day that he gets paid for his first sale is when everything starts with a profit and loss. Not until then, with minor exceptions such as an LLC annual fee for the state. 

I haven’t digressed in several episodes, so I think I will now.  I recently saw an Ad on Facebook that said, “Don’t make Bookkeeping a Full Time Job”.  Use (Our Software).  Are they advertising the idea that someone should use shortcuts and not do things, right?  Shame on them. Bookkeeping is a full-time job.  There is a right and wrong. Sometimes there is more than one way of accounting for a transaction correctly, but accounting is based on right and wrong. Bookkeeping IS a full-time job. It should be respected but it isn’t. I have never used engagement letters (never needed them), but it seems since Covid, people are giving me less respect for what I do for them.  They demand more, pay me slower, and when they find someone cheaper, or a bookkeeper who can dedicate more time to them, a few clients have left me. But that’s ok.  I still have a backlog, but now I am able to get their bookkeeping done. I’m still busy and making a major dent in getting rid of the clients who I don’t want to work for and replacing them with quality respectful clients. 

Talking about those clients, it’s time for me to get back to work in my summer projects as well as the monthly bookkeeping that needs to be done.  I might even catch up with my own bookkeeping!

I’m Paul Rosenblum