Clean and organized accounting records are crucial for the financial health of your business. Messy and inaccurate records can lead to costly errors, tax problems, and compliance issues. As a business owner, taking the time to clean up your accounting records can save you time and money in the long run.
In this blog, we’ll provide you with a step-by-step checklist, complete with specific examples and bullet points, to help you get your financial records in tip-top shape. If you Bookkeeping is a mess, you will need to take steps to clean up your Bookkeeping or can use our Catch Up Bookkeeping Services and have us do the heavy lifting for you instead.
Why its crucial to Clean Up Your Accounting and Catch up on your Bookkeeping?
There are many reasons to have clean accounting books each month. Here are a few:
Clean Up Bookkeeping Services will Ensure your Financials Are Up-to-Date
If you don’t know where you stand with accounts receivable, accounts payable, or cash accounts, you won’t be able to make strategic business decisions. With our Bookkeeping Clean Up Services, we’ll keep your numbers up to date to give you a
current picture of your accounts receivables so you no longer need to worry about a client being 60 days overdue on their payment or need to worry about not knowing what your cash flow will be next week. You also won’t need to worry about manually tracking expenses. A virtual bookkeeper can help you automate that and more.
Our Bookkeeping Clean-up Services will get you Ready for Tax Season
No one enjoys tax season (not even accountants), but paying taxes is a required part of keeping your business tax compliant. If you don’t have accurate records, you may miss out on deductions or income on your tax returns. This oversight could lead to a higher tax expense than required or an incorrect tax return.
Catch-Up Bookkeeping will Ensure Compliance for Fiscal Year-End or Financing Opportunities
If your company requires a set of reviewed or audited financial statements, you’ll need a clean set of books. During a financial review or audit, accountants will ask to see documentation of your income and expenses, and your assets and liabilities to evaluate how your business is performing.
While most small business owners won’t need to undergo yearly financial reviews, these reviews can provide additional support for financing opportunities. Most banks or other commercial lenders require you to have up to date financial statements and taxes before providing financing. If the IRS decides to audit your business tax return, having an accountant-reviewed set of financials can be very helpful in resolving any issues.
What Documentation Do I need for my Taxes?
Any transaction that involves a purchase, sale, or other financial change should be well-documented. Documentation may include a receipt, invoice, bank statement, or copies of bills and loan statements.
An Accounting software such as QuickBooks Online will allow you to upload your support documents into your Bookkeeping software to track in your books. You should take advantage of this as much as possible. QuickBooks allows you to add a digital back up of all source documents for each transaction — just make sure to keep them organized!
Warning Signs That You Need to Clean Up Your Books
There are several indications that an Bookkeeping clean-up may be required. If you see any of these signs, it is time to take steps to clean up accounting records.
Inconsistencies in Financial Statements
Hopefully, you review your monthly financial statements for accuracy. You may compare your cash account and lines of credit with your bank statements, take a balance sheet health check, and check your income statement. If you notice strange variances or differences in your cash or credit card balance, it’s time to check your books for mistakes.
Inventory Levels that Don’t Align
If your company has inventory, you will need to account for it in your general ledger. Frequently, companies will perform a physical check of inventory and compare it to accounting records. If you notice differences, something may be wrong. There could have been inventory stolen or sales may not have been recorded in the ledger properly.
Overspending on Business Expenses
Sometimes business expenses may appear too high. If you’re aware of your monthly expenses and they appear to be abnormally high on your income statement, a transaction may have been booked twice or booked to the wrong account.
Incorrect Accounts Receivables or Accounts Payables Reports
A big part of the accounting process is to check your outstanding accounts payable and accounts receivable for small business reports. These reports may be incorrect if you haven’t accurately recorded a collection, payment, sale, or expense. In the end, it will lead to missing income or expenses in your books.
Over or Undervalued Assets
A business that owns fixed assets will need to record its depreciation each month. If the company sells or purchases additional assets, other entries must be made. Upon reviewing your balance sheets, you should note if the value of your assets appears incorrect.
Missing Retained Earnings
Retained earnings are an important piece of the balance sheet. They consist of all profits and losses from prior years, plus income or loss for the current year. If you compare the income statements for all periods that your company has been open, this total should match the net profit and retained earnings balance on your balance sheet. If it doesn’t, you have a problem. Now that we discussed the importance of having pristine Bookkeeping and Accounting systems in place, we will discuss how you as a Small Business owner can clean up your bookkeeping so you’re ready come tax season. Here are the steps you should follow.
Review Your Chart of Accounts:
● Example: Check if your chart of accounts has unnecessary accounts, duplicates, or inaccuracies.
● Delete or merge redundant accounts to simplify your financial reporting.
Reconcile Bank and Credit Card Statements:
● Example: Match each transaction in your bank and credit card statements with entries in your accounting software.
● Investigate and resolve any discrepancies, such as missing transactions or errors.
Update Your Balance Sheet:
● Example: Ensure your assets, liabilities, and equity accounts are accurate.
● Verify that the balances in your bank and loan accounts match your real-world financial positions.
Organize Invoices and Receipts:
● Example: Sort and file all invoices, receipts, and expense documentation in a systematic manner.
● Consider digitizing documents to reduce paper clutter and make them easily accessible.
Record Depreciation and Amortization:
● Example: Calculate and record depreciation on your tangible assets and amortization on intangible assets.
● Keep your fixed asset records up to date to reflect the true value of your business assets.
Verify Payroll Records:
● Example: Double-check your payroll records to ensure accurate employee information, tax withholdings, and deductions.
● Confirm that payroll expenses match the amounts withdrawn from your bank account.
Reconcile Accounts Receivable and Payable:
● Example: Compare your accounts receivable to customer statements and accounts payable to vendor statements.
● Follow up on any discrepancies and make necessary adjustments.
Perform a Journal Entry and General Ledger Review:
● Example: Scrutinize your journal entries for errors, misclassifications, or inaccuracies.
● Correct any entries that do not align with your financial transactions.
Reconcile Sales Tax and Income Tax Records:
● Example: Verify that your sales tax and income tax records match your financial statements.
● Make adjustments or file amendments as needed to ensure compliance.
What if I don’t want to do it on my own?
Hiring an Accountant to Clean Up Your Bookkeeping
If you see mistakes in your general ledger, then you may be in need of Catch Up Bookkeeping, or a Bookkeeping Clean Up to get your books current and in balance.
Our Small Business Accounting professionals will reconcile balance sheet accounts and examine your income statement for inconsistencies. We will also do a full QuickBooks Diagnostic Review to review your General Ledger and analyze your taxes from prior years to ensure that your retained earnings and tax liabilities are correct. Significant prior-year errors may affect your previous tax returns and financial statements.
As an example, missed sales or expenses can change your taxable income. Errors could result in additional tax you should have paid or more of a refund. If you find these mistakes, you will have to file an amended tax return to fix those prior years taxes. While there are costs associated with hiring someone to help you with your accounting processes, the expense is well worth it. It saves time, gives you peace of mind, and allows you to make better business decisions with accurate information.
How Prolific Financial Can Help You Clean Up Your Bookkeeping?
Cleaning up your accounting records is an essential task for any business owner. It ensures the accuracy of your financial information, helps you make informed decisions, and reduces the risk of costly errors. By following this checklist and the accompanying examples, you can streamline your accounting processes, maintain compliance, and pave the way for a more successful and financially sound business. Remember that regular maintenance of your accounting records is key to long-term success.
We offer clean-up bookkeeping services that can assist you with getting your finances up to date. We will prepare your profit and loss, balance sheet, and cash flow statements. We will then conduct a year-end Financial review to analyze the financial health of your business and identify areas for improvement. Learn more about our services today!
