Five Critical Steps in a Bookkeeping Cleanup
Messy books? Incomplete, inaccurate, not updated set of books? Why bother? Do you really need a clean set of books…is it worth it?
Having a bad set of books can give you problems not only with the IRS but in managing your business as well. Following is a list of some of them:
a. You don’t know how your business is doing – with inaccurate information, you are not seeing the performance of your business.
b. Wasted Time – when you don’t see the information you need, you have to dig somewhere to get that and it takes away your precious time
c. Having a hard time getting business loans or investments – when you don’t have a good set of financial reports, the bank will not approve your loan, or you won’t be able to convince your next investor
d. Missed Tax deductions – filing using inaccurate set of books will lead to missing deductions, higher taxes, and penalties from the IRS
e. More expenses, overwithdrawals, and other money errors – when you don’t have a clear picture of your business financials…you may not be able to budget expenses effectively, withdraw money more than you should, and do other things detrimental to your business cash flow.
Bad bookkeeping wastes your time and money…and put your business at risk. If you experience any of the above issues, it’s time to have your books cleaned up, updated, and reconciled.
Here are Five Critical Steps to Cleaning up your books, so it will perform at its best and give you just what you need:
1. Completeness - Check for missing entries
A very common thing for a books not properly maintained are missing entries. There could be expenses you missed recording, check payments not applied to invoices, or forgetting to update bank feeds sync thus the transactions are not flowing to QuickBooks Online.
If the missing entries are too old and cannot be synced anymore thru bank feeds, we need to look at your bank statements and upload any missing transactions to QuickBooks Online.
2. Data entry errors - Duplicates, Floating entries, and Erroneous entries.
You may have recorded a check that has never been issued or given to your contractor, you may have recorded transactions twice or even more. Duplicates are very common when you enable automatically adding transactions using bank rules in QuickBooks Online.
Sometimes, during entering receipts, you may have put a different amount…some receipts have small text size and thus prone to errors.
3. Reconcile bank and credit card accounts
Bank reconciliation are often missed in a messy books setup. After checking for completeness and data entry errors, it’s time you reconcile your bank and credit card accounts.
This makes sure your QuickBooks Online balance tallies with the Bank balance on a monthly basis.
4. Look for Fixed Assets purchases during the year
It’s not uncommon to see big payments to a vendor charged on an expense account. But, you need to make sure any asset purchases are accounted for under Fixed Assets instead of charging them as expense.
Reclassify them, calculate depreciation, and make sure the remaining balance is according to the depreciation schedule.
5. Make Adjusting Entries
Prepayments, advances, expenses incurred but not yet paid, income received but not yet provided the services, loan forgiven, loan amortizations, etc. There could be a lot of types of transactions that need adjustment specially at year-end. Make sure to spot them and address them properly.
Consult an Accountant or a Bookkeeper
There could be more critical things that need to be addressed in your books to make sure it’s squeaky clean. And sometimes you’re too busy to do the accounting clean-up yourself or you may not know how to fix them. Getting a consultation from an accountant or a bookkeeper can help you:
- Save time
- Get peace of mind
- Improve the accuracy of your books
- Solve bookkeeping issues that you do not know how to resolve yourself
- Get customized reports according to your needs
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