The Beginner’s Guide to Performing a Bookkeeping Cleanup Job
Maintaining accurate and organized financial records is essential for any business.
However, sometimes “the books” can get out of order, whether because you haven’t had enough time to manage them, or perhaps your bookkeeper recently left the company or you discovered you aren’t happy with their work.
Whatever the reason, performing a cleanup bookkeeping job can seem overwhelming. Below are eight tips to help get things back in order to ensure your financial statements reflect the true financial position of your company.
1. Start with bank reconciliations:
The first step in the cleanup process is to review your bank reconciliations. Ensure that the closing balance matches the ending statement balance provided by your bank. This helps identify any discrepancies or errors that need to be resolved.
2. Verify the undeposited account:
Check that the undeposited account matches the most recent balance to be paid from your payment processing platform. This ensures that all funds received are properly accounted for and reconciled.
3. Manage loans and credit cards:
If your business has loans or credit cards, verify that the loan balances match the last statement balance at the end of the month. Additionally, ensure that the interest expenses are accurately recorded in the interest expense account as they are incurred.
4. Balance sheet examination:
Review your balance sheet to ensure its accuracy. All asset accounts should have a positive balance unless they are contra asset accounts. Liabilities should have credit balances. Pay close attention to any accounts that appear incorrect or out of balance.
5. Review the equity roll:
Ensure that the equity section of your balance sheet follows proper continuity. The previous year's ending balance should be the current year's beginning balance. This ensures a smooth transition and accurate representation of the equity in your business.
6. Scrutinize owner's draw or shareholder's account:
Thoroughly examine the owner's draw or shareholder's account. Clearly list any expenses marked as personal or non-business, as well as any distributions made to shareholders or owners. This helps separate personal and business transactions for accurate reporting. (I also highly recommend keeping separate accounts for business and personal expenses.)
7. Income statement accuracy:
Focus on the income statement to ensure it is correct. Income should be recorded as it pertains to the specific month, avoiding any double-stating of customer deposits. Verify that all invoices are properly matched to their respective payments, referencing the accounts receivable account on the balance sheet. Income/revenue should be credited on journal entries and have a credit balance on trial balance or general ledger reports. Any discounts provided to customers should be properly stated in a contra-revenue account. A proper journal entry for seller discounts and write-offs will look like a debit to the discount account and a credit to accounts receivable.
8. Verify expenses:
Examine expenses closely to ensure accuracy. Confirm that they have debit balances in trial balance and general ledger reports. Check for duplicate transactions and cross-reference them with bill numbers or invoice numbers. Review the accounts payable account on the balance sheet to identify any duplicate transactions.
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Take the time to review each aspect thoroughly, correcting any errors or discrepancies that you come across. By doing so, you'll have peace of mind knowing that your financial records are in order and ready for analysis and decision-making.
If in the process you find you need additional assistance or someone to provide strategic analysis of your financial position and goals, Breakaway advisors are here to help. Email info@breakaway.com and tell us about yourself and your goals.
