Bookkeeping software makes it easy to record transactions and just as easy to record them wrongly. Over time a file can collect duplicates, unreconciled accounts and mystery balances. This checklist is written with QuickBooks in mind, but the same steps apply to most small business accounting software. QuickBooks is a product of Intuit; we are not affiliated with it.
1. Back up and lock the starting point
Export key reports, such as the balance sheet, profit and loss and trial balance, before making changes, so you can explain what moved. If your last tax return was filed from this file, note the figures that were reported.
2. Reconcile every bank and card account
Start with the oldest unreconciled month and reconcile forward. Look for uncleared items that are months old: they are often duplicates, voided cheques recorded as payments, or transactions entered both manually and from the bank feed. Our bank reconciliation guide covers the method.
3. Clear undeposited funds
Customer payments recorded but never matched to a bank deposit sit in an undeposited funds or clearing account. Match each to the deposit it belongs to. Old balances here usually mean income has been counted twice: once as a payment and again as a bank deposit.
4. Review receivables and payables
Run ageing reports for customers and suppliers. Invoices and bills that are very old are often already paid, recorded twice or no longer collectable. Fix the cause rather than simply deleting them.
5. Check payroll and sales tax liabilities
Compare payroll liability balances with what payroll reports and filings say is owed. Do the same for sales tax payable. A balance that keeps growing usually means payments were posted to expense accounts instead of reducing the liability.
6. Tidy the chart of accounts
Merge near-duplicate accounts, make unused accounts inactive and clear out "Uncategorized" and "Ask my accountant" balances. Make sure loans, owner contributions and owner draws have their own accounts.
7. Review bank rules
Rules that categorise feed transactions automatically are useful but can repeat a mistake hundreds of times. Review each rule and the transactions it has touched.
8. Confirm fixed assets and loans
Large purchases recorded as expenses may need to be assets; see the IRS guide to depreciation, Publication 946. Loan balances should agree with lender statements, with repayments split between principal and interest.
9. Close the period
Once cleaned up, set a closing date so past periods cannot be changed by accident.
Signs a file needs cleanup
- Bank balances in the books do not match statements
- Undeposited funds or clearing accounts carry large or old balances
- Customers appear to owe money they have already paid
- Payroll liability accounts keep growing
- Expense accounts include personal or owner transactions
- Reports show large amounts in uncategorized accounts
- Your tax preparer has to make many adjustments at year end
If several of these apply, a structured cleanup is usually faster than fixing items one at a time as you notice them.
Records to keep
Keep notes and the source documents behind any correction. The IRS explains in its recordkeeping guidance that records must support the income and deductions on your return.
We do cleanups as part of onboarding for our bookkeeping services. Book a consultation to talk through your file.
