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steps to clean up accounting records

Steps to Clean Up Accounting Records: A Checklist


steps to clean up accounting records

Taking steps to clean up accounting records can be a big undertaking for small business owners. Hopefully, you started your business on the right foot financially. You may diligently record your accounting transactions or have hired someone to take care of accounting for you. If that is not the case, you will need to take steps to clean up accounting records or use a catch-up bookkeeping service

When and Why You Need to Clean Up Your Books

There are many reasons to have clean accounting books each month. Here are a few:

Ensure 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. Clean bookkeeping means you don’t have to keep track of the client who is 90 days overdue on their payment or anticipate what your cash flow position 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.

Be 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. 

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 expenses and income. They may perform other accounting activities to assess your level of financial controls in the company. 

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 a financial review 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 Should You Have?

Any transaction that involves a purchase, sale, or other financial change should be well-documented. Documentation may include a receipt, invoice, bank statement, or another item, such as a lease. 

Frequently, accounting software will allow you to upload support for any transactions recorded in your general ledger. You should take advantage of this as much as possible. You may also save paper copies of documents — just make sure to keep them organized!

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Warning Signs That You Need to Clean Up Your Books

There are several indications that an accounting 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 Payable or Receivable 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.

Hiring an Accountant to Clean Up Your Records

If you see mistakes in your accounting ledger, it’s time to hire an accountant to help you sort out your financial reporting. 

An experienced and knowledgeable accountant can reconcile balance sheet accounts and examine your income statement for inconsistencies. They can also review details from prior years to ensure that your retained earnings 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.

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 Xendoo Can Help You Clean Up Your Accounting

Xendoo offers a clean-up bookkeeping service that can assist you with getting your finances up to date. Learn more about our services today!

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What Is Catch-Up Bookkeeping?

Xendoo provides online bookkeeping, accounting, and tax support for your partnership business.

When you get behind in your books, you have two choices: lose sleep or turn to a catch-up bookkeeping service to help you out. 

What is catch-up bookkeeping? Catch-up or “clean-up” bookkeeping is the method of bringing your financial records up to date.

In other words, catch-up bookkeeping lets you spend less time worrying about the past and more time focused on the future. Let’s take a quick look at what you can expect from a catch-up bookkeeping service.

How Catch-Up Bookkeeping Is Different from Ongoing Bookkeeping

Most business owners already have some sort of bookkeeping strategy in place, which might involve recording income and expenses as well as saving receipts and documenting expenses in preparation for tax season. These ongoing bookkeeping strategies are intended to keep pace with the normal flow of business.

How is this different from catch-up bookkeeping? Catch-up bookkeeping operates as an emergency solution when you get behind in your ongoing bookkeeping efforts. Catch-up bookkeeping attempts to look back through the past several months, record income and expenses, and bring your books completely up-to-date.

Catch-up bookkeeping services can also provide some strategies to keep you from getting behind on your books in the future.

The Core Steps of Catch-Up Bookkeeping

Some business owners try to get books caught up on their own. But if you got behind in your books because you lacked the time to do your accounting properly in the first place, how will you find the time to get caught up?

Instead, it might be a good idea to rely on an experienced CPA or tax professional to review your books. These financial professionals can then help you to do the following:

Gather Your Receipts and Documents

First, you want to gather as many of your business receipts as possible. This will help you to better determine your income and expenses. 

Other documents to gather include:

  • Customer invoices
  • Debt collections
  • Business expenses
  • Vendor payments

With this approach, you’re trying to do two things. First, you’re attempting to find paperwork to document your business transactions. But secondly, you will determine whether there are any outstanding debts that you owe to your vendors and any outstanding invoices that your customers have yet to pay.

This will be particularly important when tax time rolls around, as these receipts can help you to determine your earnings for the year and write off any business expenses or bad debt that you incurred.

Reconcile Your Bank Accounts

Next, your accountant can help you to reconcile your bank accounts. What does this mean? During the reconciliation process, your financial professional will compare each transaction in your accounting records with the same transaction on your bank statements.

Ideally, the two numbers should match, but if they don’t, you’ll need to address any errors to ensure that your financial records are accurate.

If this process sounds time-consuming, that’s because it is! In many cases, this is the step that adds time to the catch-up process, since your accountant will have to spend a while sifting through your financial data. 

Separate Personal and Business Expenses

It’s critical that you keep your personal and business expenses separate. Not only can mixing them create confusion, but you could find yourself personally liable if something should go wrong in your accounting.

At the very least, you should have a business bank account and use this account for any transactions that involve your company. Some companies prefer to open multiple accounts to organize department budgets or to use one account for income and another for vendor payments, for example.

Separating these expenses will make it easier for you and your accounting team to manage your books and to be fully prepared for tax time. Keeping your personal expenses separate will also make it simpler to file your personal tax return.

Collect W-9s, 1099s, and W-2s

Do you have employees? Have you hired any independent contractors during the tax year? If so, you’ll need to distribute the appropriate tax documents before the end of the year.

If your business has employees, you’ll need to file Form W-2. If you paid an independent contractor more than $600 over the course of a year, you’ll need to use two documents. You’ll give a W-9 form to each contractor. They’ll complete their tax information and return it to you. You’ll then use this data to file Form 1099-MISC with the IRS.

Enjoy the Benefits of Accurate Financial Data

This process can take some time, but once it’s complete, you’ll be caught up with your books. You can breathe a sigh of relief and look forward to the benefits of accurate data, along with a more complete understanding of your company’s cash flow.

While we’ve highlighted the importance of getting caught up before tax season, there’s never a bad time to catch up on your books. Staying up-to-date throughout the year can even help you to plan ahead so that you can reduce the stress that often comes with tax season.


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How Much Does Catch-Up Bookkeeping Cost?

Understandably, many business owners find themselves wondering: “What is catch-up bookkeeping going to cost my business?”

The answer to this question depends on how far behind you are in your books. The longer it takes to reconcile your accounts and bring your records up-to-date, the more you can expect to pay for catch-up services.

Xendoo offers catch-up bookkeeping for small businesses starting at $195. This catch-up bookkeeping cost is negligible compared to the peace of mind you’ll have knowing your financial records are current and accurate. 

Get Caught Up with the Experts at Xendoo

You’ll rest easier knowing that your books are being handled by a financial professional. That’s why Xendoo offers expert-level catch-up bookkeeping services for small business owners. We’ll help you to get caught up and give you the tools to remain current on your books in the future.

To learn more about catch-up bookkeeping and other financial services, contact us today or sign up for our free trial.