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Solving the Puzzle: A Practical Guide to Bookkeeping Cleanup

Updated: Apr 30

Bookkeeping Clean-up

Neglecting proper bookkeeping cleanup can lead to issues for small to midsize businesses, including inaccurate financial statements, missed tax deadlines, and difficulty making informed business decisions 1. Bookkeeping cleanup, also known as catch-up or retroactive bookkeeping, involves bringing a company's financial records up to date by reconciling accounts, categorizing transactions, and ensuring all income and expenses are properly recorded for accurate financial reporting 1 2.

Bookkeeping cleanup helps organize financial records, identify and correct errors, omissions, and inconsistencies in the data, account for all transactions, and standardize accounting methods 2. It ensures compliance with regulations, enables better financial decision-making, improves cash flow management, and helps estimate taxable income and plan for tax optimization 3. By achieving accurate bookkeeping through cleanup services, businesses can enhance scalability, minimize risks, and streamline financial analysis for informed decision-making 2.

Identifying the Scope

Diagnostic Review

Performing a paid diagnostic review is crucial to assess the health of the client's QuickBooks Online data, diagnose problems, and get a clear scope of work before starting the cleanup 4. This review helps qualify the client, demonstrate your expertise, and get compensated for your time 4.

During the diagnostic review, you should:

  1. Reconcile the balance sheet to the last tax return 4.

  2. Review bank/credit card accounts for old/unclear transactions, auto-adjustments, and connectivity issues 4.

  3. Review profit & loss accounts for negative/unusual balances, uncategorized income, and improper recording of deposits/loan proceeds 4.

After the review, prepare a report of your findings and recommendations to present to the client 4. Use this report to position yourself as an expert, communicate your value, and provide pricing for the cleanup services 4.

Assessing the Situation

The client's books may have become a mess due to the owner trying to handle bookkeeping tasks without proper knowledge, such as invoicing or managing undeposited funds 8. Additionally, the books could have been neglected for a long time, perhaps after a previous bookkeeper left and no one took over 9.

Typically, clients will want the current year or the previous year's books cleaned up, especially if they need to file taxes 10. It's important to determine if the books were last reconciled, as this can provide a good starting point 11. In some cases, it may make more sense to start fresh with a new set of books rather than trying to fix multiple years of issues [12].

Planning the Cleanup

Gathering Documentation

The first step in planning a bookkeeping cleanup is to gather all relevant financial documentation from various sources, including email, vendors/clients, bank/credit card statements, and accounting software 5. If records for certain transactions are missing, try contacting the vendor/supplier, recreating the invoice, or using estimates based on historical information 5.

Categorizing Transactions

Once you have all the documentation, categorize similar transactions into the same account in your chart of accounts, aiming for 10-15 accounts 5. Review past transactions to ensure they were categorized correctly 5. Ensure each transaction in your bank statements is reflected in your accounting software, and manually add any missing transactions 5.

Implementing Best Practices

To maintain organized books moving forward, implement the following best practices:

  1. Reconcile your bank statements monthly 5.

  2. Make adjusting entries for accruals, depreciation, amortization, prepayments, and accrued revenue 5.

  3. Stay up-to-date on paying quarterly taxes based on your newly organized bookkeeping 5.

  4. Implement accounting software that can automatically connect to payment processors, bank feeds, send invoices, store receipts, and generate financial reports 5.

  5. Commit to regularly reviewing your finances to maintain consistency 5.

Executing the Cleanup

Receiving and Organizing Client Information

The first step in executing a bookkeeping cleanup is to receive all relevant client information, including physical or electronic files such as invoices, credit card statements, receipts, and bank statements 7. It's crucial to organize this information systematically, ensuring that all documents are accounted for and easily accessible 7.

Data Entry and Account Reconciliation

Once the client's information is organized, the next step is to enter it into the appropriate accounting software 7. This process involves meticulously recording every transaction, ensuring that all income and expenses are accurately captured.

After data entry, the accounts must be reconciled by reviewing them for accuracy and comparing them to the corresponding bank statements 7. This step is essential for identifying and correcting any errors or discrepancies that may have occurred during the data entry process.

Error Correction and Expense Categorization

During the reconciliation process, any errors discovered must be promptly corrected 7. This may involve making adjustments to transactions, correcting misclassifications, or addressing any other issues that may have arisen.

Additionally, it's crucial to review the expense categorizations to ensure that all transactions are properly classified 7. Accurate categorization is essential for generating accurate financial reports and making informed business decisions.

Documentation Review and Financial Reporting

After completing the data entry, reconciliation, and expense categorization processes, the next step is to review the documentation to ensure that it is complete and properly filed 7. This step helps maintain organization and ensures that all necessary records are readily available for future reference.

Finally, financial reports should be generated for the client, providing them with a comprehensive overview of their financial situation 7. These reports should be sent to the client, along with any necessary explanations or recommendations 7.

Maintaining Organized Books

Establishing Foundational Practices

To maintain organized books, it's crucial to establish foundational practices that promote accuracy and efficiency. Keeping a separate business account helps clearly separate business and personal expenses, making it easier to track all business transactions 8. Prioritizing bookkeeping as a primary goal is essential, as inaccurate records can lead to serious and expensive consequences like fines 8.

Implementing Systems and Processes

  1. Establish a consistent filing system, whether electronic or physical, to ensure financial records are easily accessible and organized 8.

  2. Maintain consistent financial records by reviewing statements monthly to identify and address any issues or inconsistencies in the accounting records 8.

  3. Properly label and categorize your chart of accounts to support financial reporting 9.

  4. Implement robust processes for gathering, generating, and archiving source documents like receipts, invoices, timesheets, etc. 9.

Leveraging Technology and Automation

  1. Use online accounting software like Xero or QuickBooks Online to improve data accessibility and reduce paper filing 9.

  2. Maintain separate bank accounts for personal and business finances to avoid commingling of funds 9.

  3. Utilize integrated apps and automation tools like Receipt Bank, Plooto, and TSheets to streamline bookkeeping tasks and reduce manual data entry 9.

  4. Implement business management software tailored to your industry to better track inventory, production, and sales 9.

  5. Set up automated reminders and electronic payments to stay on top of bills and improve cash flow 9.

Seeking Professional Assistance

  1. Consider hiring a bookkeeper, either on an as-needed or ongoing basis, to help ensure the accuracy and organization of the accounting records 8.

  2. Outsource payroll to a service like Payworks to ensure compliance with regulations and accurate, timely processing 9.

  3. Regularly review business transactions, financial statements, income/expenses, and ROI to identify trends and opportunities for improvement 9.

  4. Consult with an accountant to help interpret your financial information 9.


What are the steps involved in bookkeeping cleanup?

To effectively clean up your bookkeeping, follow these nine essential tasks:

  1. Collect client information.

  2. Organize the client's data.

  3. Input all client information into your system.

  4. Reconcile all accounts to ensure they match up with bank statements.

  5. Identify and correct any errors found in the records.

  6. Review and verify the categorization of transactions.

  7. Examine the preparatory work done before finalizing the accounts.

  8. Generate reports to review financial status and progress.

What is the procedure for cleaning up QuickBooks Online (QBO)?

A QuickBooks Online cleanup can be efficiently managed by adhering to these four steps:

  1. Preserve historical data in QuickBooks; do not delete old records.

  2. Compile a list of any known issues within your QuickBooks system.

  3. Assess and possibly revise your QuickBooks chart of accounts to ensure it meets current business needs.

  4. Seek a reliable, long-term bookkeeping team to maintain your financial records.

What does "clean up" mean in QuickBooks?

In QuickBooks, cleaning up refers to the process of tidying your financial records. This includes reassigning transactions that have been misclassified to their correct accounts and reconciling all bank and credit card accounts to verify and ensure the balances are accurate.

How can you effectively clean up your chart of accounts?

To clean up your chart of accounts, consider the following actions:

  • Review each account to confirm its necessity and relevance to your business operations.

  • Merge any accounts that are duplicates or no longer needed.

  • Rename accounts for clarity and ease of understanding.

  • Create new accounts as required to enhance the tracking and management of your business transactions.



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