If you have a business, you’ve likely heard the term “clean up your books.” But what does “cleaning up your books” actually mean? As we dive into Q2 of 2022, it’s essential to take some time to make sure your Quickbooks is an accurate reflection of your business. In this post, we’ll break down Quickbooks clean-up, the importance of keeping your books updated and how to make sure your books are nice and tidy at the end of each business quarter.
What does it mean to “clean up” QuickBooks?
Investing in accounting software like QuickBooks doesn’t mean your business finances are magically taken care of. To maintain the financial health of your business, you have to stay diligent with your bookkeeping–especially if you’re not ready to outsource it yet. Setting recurring weekly, monthly, and quarterly bookkeeping tasks will help you stay on top of your accounting–so tax season never feels daunting again.
To clean up your QuickBooks means to make sure everything is where it needs to be. Just like when you’re done tidying up your home, you feel more relaxed, more organized, and way less overwhelmed by all the clutter. This is not for my shove-everything-under-the-bed style cleaners–we’re talking organization, labels on baskets, and scrubbing baseboards level of clean. Your books require meticulous care to ensure you’re never surprised by expenses, estimated taxes, or questions from the IRS.
QuickBooks Clean-Up Checklist
Bookkeeping, simply put, is a way to track the money in and money out of your business. But it can be much more complex! If you’ve avoided bookkeeping for a few weeks, months, or even *gasp* a few years, it will take some work to get your business finances up to date. We call this a “clean up” or a “catch up” project in bookkeeper terms.
A clean-up or catch-up consists of a certified bookkeeper (or you can do this yourself with the proper knowledge!) analyzing your bank accounts and your bookkeeping software. There are a lot of areas of QuickBooks to review during a clean-up, so let’s break them down.
Reconciliation of all accounts
Reconciliation is a fancy way of saying checking to make sure your bank statements match what’s in QuickBooks. To do this, download your monthly statements for all your business accounts, and go month by month and transaction by transaction, checking for inaccuracies. The reconciliation feature in QuickBooks makes this task fairly easy. However, it can take some time and investigative work to discover where the inconsistency stemmed from when you find a discrepancy. Regardless, the goal is to make sure your Quickbooks transaction feed matches your bank statements. Use your bank statement as the ultimate source of truth.
Uncategorized transactions
Every transaction that comes from your bank feed, there are times when QuickBooks doesn’t know how to categorize them automatically. If QuickBooks doesn’t know how to categorize your transaction, the program will add it to uncategorized income, expense, or asset. Having uncategorized transactions means you are not maximizing your write-offs. At the end of the year, if things are not categorized, then you or your tax preparer won’t know what bucket to put them in. For example, advertising can be a 100% write-off. If you have not categorized the flyers you printed, then you have lost out on that cost as an expense.
Undeposited Funds
In QuickBooks, your undeposited funds account serves as a holding place. If you use QuickBooks to receive payments, the undeposited funds’ account is the middle stage after your customer pays, but before you deposit them into your real-life bank account. You want to make sure that you don’t have any deposits sitting in undeposited funds after a clean-up.
For example, let’s say on Monday Sally pays you $100 and Jon pays you $50. You will record these payments in QuickBooks to undeposited funds. Then Tuesday you have a chance to drop off those deposits to the bank and on your bank feed, this will show as a $150 deposit. If you do not match the two undeposited payments to this $150 deposit, then your income will be recorded as doubled and you will show a $150 liability that you will have to explain come tax time or if you want to apply for a loan. Some people avoid mistakes like this by depositing each payment separately to easily match each payment to each deposit.
Aged Accounts Receivables
Aged accounts receivables are a way to see unpaid customer invoices and unused credit memos. When you clean up QuickBooks, you can use the accounts receivable aging report to see how many unpaid invoices you have outstanding. The transition into a new quarter of business is a great time to check this report and make an effort to collect unpaid invoices. This is when you can choose to reach out to the customers for payment or you can write off the invoices if you believe you will not receive payment.
Aged Accounts Payables
Aged accounts payable are invoices you owe. The accounts receivable aging report can sort your business’s unpaid invoices with the number of days they’ve been due. It can show you what you owe to customers, to services, or to bills. While we recommend checking this monthly, at the minimum this can be reviewed quarterly. We’ll make sure you don’t owe any outstanding invoices or bills during a clean-up.
Incorrectly categorized transactions
When you connect QuickBooks to your bank and credit card feeds, there’s always a chance Quickbooks automatically mismatches the records you’ve created. If Quickbooks can’t find a match to the transaction (or matches it incorrectly), you can fix it fairly quickly. The important thing is to check to see if Quickbooks mismatched your transactions. We recommend you go into every category monthly, on both your balance sheet and your profit and loss, to confirm that every transaction is in its rightful place.
Why it’s essential to clean up your books
Having your accounting software updated to reflect the state of your business is important on many levels. Knowing where your money is going and where your money is coming from is just one vital benefit of having your books up to date. As a busy business owner, updated QuickBooks will give you a quick understanding of the health of your business, so you can grow your business with confidence. When it comes to quarterly taxes and end-of-year taxes, clean books will significantly reduce the stress of the process and possibly the cost of your tax preparation!
Whether you’re doing your own bookkeeping clean-up or you want to outsource it to a professional, there’s no time like the present. The more you avoid your books, the more stress you will feel and the less you will know about the financial health of your business. Please reach out with any questions and learn more about how KC Virtual Bookkeeping can help you clean up your QuickBooks!
