Most business owners sense that their books are off long before anyone confirms it. The reports look plausible, but something does not add up. Here are seven signs I look for when I review a QuickBooks Online file, what each one usually means, and what a cleanup involves.
1. The bank balance in QuickBooks does not match the bank
QuickBooks Online shows two figures for each bank account: the balance at the bank and the balance in your books. A small difference can be timing. A large or growing one usually means duplicated, missing or unreconciled transactions.
2. Accounts have not been reconciled
Reconciliation is the monthly check that the books agree with the statement, line by line. If the last reconciliation was months ago, or was forced to balance with an adjustment, nothing after that date can be fully trusted.
3. Old uncleared transactions
Open the reconciliation screen and look for checks and deposits from long ago that never cleared. They are often duplicates or entries that should have been voided, and they distort the cash balance.
4. A large balance in Undeposited Funds
Undeposited Funds is a holding account for payments received but not yet deposited. It should clear to nearly zero. A balance that keeps growing usually means deposits were recorded straight to income as well, so revenue is counted twice.
5. Uncategorized income and expenses, or a busy Ask My Accountant account
These accounts are meant to be temporary. When they hold many months of transactions, the profit and loss statement is incomplete and tax deductions may be missed.
6. Negative balances where they do not belong
A negative accounts receivable, accounts payable or payroll liability balance is a signal. Common causes are payments not matched to invoices, bills paid without being entered, and payroll posted to the wrong accounts.
7. The balance sheet has lines nobody can explain
Opening Balance Equity with a balance years after setup, loans that never reduce, or assets the business no longer owns. Lenders and buyers read the balance sheet first, so these matter.
What a cleanup involves
- Diagnosis. A review of the file and a written list of problems, before anything is changed.
- Scope. A decision on how far back to go. Closed tax years need a conversation with your CPA before they are touched.
- Reconciliation. Every bank, card and loan account is reconciled from the agreed starting point.
- Correction. Duplicates removed, postings corrected, holding accounts cleared.
- Close. Periods are closed and locked, with a log of what changed.
Can you do it yourself?
Sometimes. If the problem is a few months of unreconciled activity in one account, an owner with patience can catch up. When several signs appear together, or prior years are involved, it is usually faster and safer to have it done by someone who does this regularly.
If your file shows several of these signs, see my cleanup and catch-up bookkeeping service or send me a note describing what you see.
This article is general information, not tax or accounting advice for your situation.