Checklist To Clean Up Bookkeeping Records

Business owners meet lots of messes on daily basis, ranging from back room inventory overflows, problems of schedule, to errors in preparing invoice, among others.

These challenges in business lead to troubles, hassles, sleepless nights, and if left unchecked, can prematurely end a business. Unfortunately, such challenges are inevitable due to the nature of running a small business.

However, bookkeeping and accounting records should never be among the messes found in a company.

You tend to make informed decisions when you have good data, which is a sufficient reason to regularly clean up your bookkeeping records. Clean financial records are not just admired; they're specifically required in certain cases.

For example, investors who want to acquire the company or partners often request clean financial records before investing in the business. Handing over poor financial data can jeopardize a potential deal or result in fines from regulatory authorities later on.

In order to qualify for PPP, EIDL, or other government economic stimulus funds, you must present financial reports, for which proper bookkeeping is necessary. Some individuals have not been keeping up with their bookkeeping, and with this checklist, they can approach the job more efficiently.

Moreover, bookkeeping records are mandatory in the likelihood of an audit. Failure to provide them can lead to delay in audit process and providing insufficient records can lead to penalties and other distasteful outcome. Your business needs clean books to thrive.

To clean up your records, there are some bookkeeping cleanup checklist which are very important. Firstly, you have to find out if there is a problem in book, scrutinize problem areas, then troubleshoot detected issues. 

Below is a comprehensive explanation on some important bookkeeping Cleanup Checklist:

Before you carry out a formal audit of the books, it is very important to know if there is truly a problem or just assumptions. Normally, businesses with a very messy bookkeeping records know that there are issues that need urgent attention. 

However, businesses with little errors or small insignificant problems may not comprehend the genesis of the problem and the technique to redress the root issue.

There are some common signs which can show you that there are issues in your bookkeeping records, these errors are:

These issues stated above, are the signs of issues in the books. Hence, it is time for your business to clean up its bookkeeping records if any of these warning signals show up through bookkeeping clean up checklist

Once it is apparent that there is a problem, the difficult aspect starts. The hardest aspect for business owners is often knowing where to find the cause of the issues. While you don't necessarily need to take these steps consecutively, they are the general place to find problems.

Keep up with this guideline when closing the books to efficiently audit financial records:

Inside shareholder equity, there should be an agreement between retained earnings and tax return filings. You know there is a problem if the business does not have exact funds after paying cash to owners.

Beginning here gives a solid bedrock for the rest of your audit process because if there is a disagreement, then the problem is in the current fiscal year, which shows that there is no need to modify previous tax returns. It is likely that the issue is further in the past if there is no discrepancy, demanding an audit of balance sheets and earlier tax return records.   

It is crucial to make sure that actual cash flows match bank records which is also important for timely paying suppliers and partners, in addition to tracking customers on outstanding invoices. You should do a monthly cash reconciliations for each active bank account, or frequently for more accounts.

Do a depreciation schedule on PPE (Property, Plant and Equipment) to keep away from overestimating their worth. The value of fixed assets are expected to decrease predictably until they finally become obsolete.

Inventory counts are information that show what a business has available to change into cash in a short period. This implies that verifying levels of inventory must be well-timed to give applicable information. Profits and losses in the year should be promptly separated from retained earnings to give a correct view of number of inventory available for the business.

You should endeavor to appropriately account for both tangible and intangible assets in a timely manner. Tangible assets are those we can see, feel, and touch within a business, while intangible assets are the opposite. Tangible assets include assets like inventory, whereas intangible assets encompass items like intellectual property, which hold value for the business but cannot be seen physically. All total assets must change over time instead of remaining static. Moreover, asset balances should always be positive, meaning that negative balances must be identified and rectified as part of the auditing process.

Similar to reconciling bank accounts to ensure cash accuracy, credit accounts must be reconciled too. Wherever there is a perpetual balance, transactions occurring against the account should be brought together. Interest on lines of credit should be recorded as an expense. Don't forget that abnormal balance activity like a negative balance, needs extra check.

Where a business owner owns multiple businesses, it's crucial to maintain precise record-keeping when transferring cash between them to avoid complicating the books of each business. Regardless of ownership, each business should be treated as a separate entity to prevent an increase in fraudulent activity and to minimize the likelihood of a tax audit.

Doing a full financial audit is always difficult and slow. However, neat bookkeeping records are worthwhile. When your books are clean, it reduces employee stress, prompt better management decisions, and enables overall business activities to flourish.