When you first start working with a new business as a bookkeeper or accountant, one of the most critical tasks is cleaning up their books. Nine times out of ten, the books you inherit will need some level of cleanup before you can start regular bookkeeping or accounting work. Without a solid foundation, monthly bookkeeping can become a frustrating and inaccurate process.
I am going to walk you through my 10-step process to clean up the books for any business. This approach is designed to help you understand exactly what you’re working with, the scope of the cleanup, and how to fix the messy books efficiently.
Why Bookkeeping Cleanup Matters
Before diving into the steps, it’s essential to understand why bookkeeping cleanup is so important. Messy books can hide financial truths, lead to inaccurate tax filings, and make it impossible for business owners to make informed decisions. By cleaning up the books, you’re not only organizing financial records but also uncovering money leaks and improving cash flow visibility.
Whether you’re working for a company or freelancing, starting with clean books sets the stage for accurate reporting, better financial management, and smoother audits or tax preparations.
Step 1: Obtain Access to the Client’s Books
The first and simplest step is to gain full access to the client’s accounting system. It doesn’t matter which software they use — QuickBooks, Xero, Sage, or any other platform. You need to get inside the system to review and work with their financial data.
Without access, you can’t review, assess, or fix anything. Getting access often involves coordinating with the client’s current bookkeeper, accountant, or software administrator to ensure you have the right permissions.
Step 2: Conduct a Thorough Review of the Entire Books
Once you have access, the next step is a deep dive into the books. This isn’t a casual glance at a profit and loss statement or balance sheet. You need to physically review the entire software file from start to finish.
During this review, be on the lookout for:
- Software integrations: Identify systems feeding data into the accounting software, such as payroll, bill payment platforms, project management tools, or payment processors like PayPal or Venmo.
- Missing transactions: Check every bank account, credit card, PayPal, and other financial accounts to ensure all transactions are recorded.
- Reconciliation status: Determine when accounts were last reconciled. If the books haven’t been reconciled in months or years, that’s a red flag.
- Account balances: Look for accounts with unusual balances, such as debit accounts showing credit balances or vice versa.
- Irregularities: Identify any oddities or inconsistencies in recorded data.
This step is crucial because it gives you a full picture of the current state of the books and helps you gauge the size and complexity of the cleanup project.
Step 3: Document and Report Everything That’s Wrong
After your review, compile a detailed report listing all the issues you found. Include screenshots where possible to provide visual evidence of errors or inconsistencies. This level of transparency helps build trust with the client and clearly communicates the scope of work.
This report serves multiple purposes:
- It educates the client about the state of their books.
- It helps you justify your pricing for the cleanup work.
- It provides a roadmap for the cleanup process.
- It allows the client to shop around if they want to fix the issues themselves or with another provider.
Note that this review and reporting phase is a paid service because it requires a significant time investment and expertise.
Step 4: Restructure the Chart of Accounts
The cleanup process officially begins by restructuring the chart of accounts. Most businesses don’t have their chart of accounts set up correctly, especially if they’ve been managing bookkeeping internally or through multiple hands.
The chart of accounts should be tailored to the business’s industry and financial reporting needs. A well-organized chart of accounts makes it easier to categorize transactions correctly and generate meaningful reports.
Step 5: Adjust the Equity Accounts
Equity accounts require special attention because they should align with the business’s most recent tax filings. This step involves comparing the equity section of the books with the last tax return filed and making necessary adjustments.
For most LLCs and S corporations, this means ensuring that owner contributions, distributions, and retained earnings are recorded accurately and closed out properly. Many cleanup projects reveal equity accounts with long-running balances that were never closed or adjusted, leading to inaccurate financial statements.
Step 6: Post Any Missing Transactions
Now it’s time to fill in the gaps by posting any missing transactions you identified during your review. This could include unrecorded bank transactions, credit card charges, or payment processor activities that were never entered into the accounting system.
Accurately posting these transactions is critical to making sure the books reflect the true financial position of the business.
Step 7: Reconcile All Accounts
After posting missing transactions, reconcile every account. Reconciliation involves matching the transactions in the accounting software with bank statements, credit card statements, and other financial records.
This step can be time-consuming, especially if accounts haven’t been reconciled in a long time. It’s also the phase where you’ll catch transactions posted to the wrong accounts.
Step 8: Review and Clean Up Accounts Receivable
Accounts receivable (A/R) can be one of the biggest messes in a set of books. This step involves cleaning up invoices, payments, and credits to ensure they’re applied correctly.
Common issues include:
- Payments posted directly to cash or revenue accounts instead of being applied to specific invoices.
- Unapplied credits or overpayments that distort outstanding balances.
- Invoices that are past due by 90 days or more, requiring follow-up with the business owner on collectibility.
Cleaning up A/R helps the business understand what money is truly owed and improves cash flow management.
Step 9: Review and Clean Up Accounts Payable
Just like A/R, accounts payable (A/P) often needs significant cleanup. This step involves reviewing vendor bills, payments, and credits to ensure everything is accurate.
Some typical problems include:
- Duplicate payments recorded directly as expenses.
- Vendor credits not applied properly, leading to inflated payables.
- Old bills that may no longer be payable but remain on the books.
Working closely with the business owner during this phase is important because they may need to verify whether old invoices are still valid or if payments were made outside the system.
Step 10: Review All Remaining Accounts
Once the major accounts—bank, credit cards, loans, payroll, receivables, and payables—are cleaned up, it’s time to review everything else on the balance sheet and income statement.
This includes:
- Verifying that asset accounts have correct balances supported by source documents.
- Ensuring expense accounts are categorized appropriately (e.g., separating software expenses from office supplies).
- Confirming that income accounts reflect actual revenue streams.
Many bookkeepers overlook this step. Using specialized tools, every account is examined in detail to ensure transactions are posted in the correct “buckets.”
For example, software and internet expenses should be recorded in a dedicated “Computer and Internet Expenses” account rather than lumped into “Office Expenses.” Similarly, website-related costs may have their own account to distinguish maintenance from development.
Final Thoughts on Bookkeeping Cleanup
Cleaning up a client’s books is rarely a quick or easy process. You never truly know how long it will take or how messy the books will be until you dive in. However, following a structured approach like this 10-step process ensures you don’t miss critical details and that the cleanup is thorough.
Business owners often only realize the true value of clean books when they see their corrected receivables and payables, or when they understand how much money was inaccurately recorded or missing. Clean books lead to better decision-making, accurate tax filings, and ultimately healthier businesses.
If you’re a bookkeeper, accountant, or freelancer looking to improve your skills or offer cleanup services, adopting this process will help you provide exceptional value to your clients. It sets the stage for ongoing bookkeeping success and gives you a strong foundation to build your client relationships on.
For those interested in learning more about bookkeeping and developing professional skills, consider exploring training programs that focus on practical, real-world bookkeeping without boundaries. With the right knowledge and approach, you can transform messy books into clear, actionable financial insights.
