The process of organizing and correcting financial records and transactions is referred to as the clean-up process. This is a key function in keeping books accurate and consistent. It also involves reviewing and reconciling accounts, identifying and resolving discrepancies, and updating information to reflect the correct status of the company. Businesses should keep a constant track of their financial health. The goal of cleanup in bookkeeping is for accounting firms to achieve a precise and reliable presentation of their financial position and performance. It is one of the key mistakes that organizations make.
Bookkeeping cleanup is a time-consuming, voluminous task and hence both firm leaders and accountants keep avoiding it unless they can’t anymore. Clean-up helps evaluate the historical performance, assess current operations, and make well-informed decisions that can make or break the growth of a business.
What are the steps involved in a clean-up?
- Prepare for the clean-up:
Accounting leaders should begin by evaluating the current state of the statements. Review the recent financials, audit reports, and any discrepancies that have been there in the previous records. Identify the areas that need attention, such as unrecorded transactions, misclassified expenses, or outdated records. This initial assessment will help you understand the scope of the clean-up.
Lay out the objectives of the process. These might include correcting errors, updating records, ensuring compliance with accounting standards, or preparing for an audit. Finding the objectives will help guide the leaders to channel the efforts and help measure the success of the clean-up.
Collect all relevant financial documents including bank statements, invoices, receipts, payroll records, and previous financial reports. It is important to access both physical and digital records. All the necessary documents will help streamline the clean-up process.
Identify key team members who will be involved in the clean-up process. Set up an internal process or hire an outsourced team based on their expertise and workload. Maintaining clear collaboration and communication among team members is essential for an efficient clean-up.
- Reconcile accounts:
Start by comparing your business’ bank statements with the corresponding entries in your accounting records. Identify and solve discrepancies like missing transactions, duplicated entries, or incorrect amounts. Ensure that all bank transactions are accurately recorded in your accounting system.
Review your accounts receivable records to ensure that all outstanding invoices are accurately recorded. Verify that payments that you have received from customers are correctly applied to their respective invoices. Follow up on overdue payments and assess if there are chances of bad debt.
Also, take a look at your accounts payable records and reconcile them. Ensure that all vendor invoices are recorded and matched with relevant purchase orders and receipts. Verify that payments made to vendors are recorded and reflected accurately. Address the discrepancies, such as unpaid or duplicate invoices.
- Review and adjust the transactions:
Review and examine the general ledger for any unusual or incorrect entries. Pay particular attention to large or irregular transactions. Verify their accuracy and appropriateness. Adjust journal entries as necessary to correct errors or reflect accruals, deferrals, etc.
Make sure you keep adjusting them as and when they occur, instead of waiting for an audit or year-end. This may also include accruals for expenses incurred, but not yet recorded. Ensure that all adjustments are well documented and supported by appropriate evidence.
- Verify supporting documents:
The numbers that are in the statements need to match the supporting documents. Ensure that all the supporting documents are in place. These could include invoices, receipts, and contracts. Verify that the amounts and details in the documents match the entries. If needed, get these details verified by an outsourcing expert.
Make sure you systematically have your financial documents. Use a consistent filing system for both physical and digital records. Documenting these properly will facilitate future audits and reviews. Keeping the documents organized and safe will also help you access them when you need authentication and verification.
- Upgrade the way you conduct bookkeeping cleanup:
Poor record keeping leads to books being messy and inaccurate. If you are not getting any additional help, you might consider upgrading your software. Gone are the days when traditional accounting processes helped complete the tasks. However, with the nature and complexity of modern-day accounting tasks, the need for accounting software is inevitable. Accounting software can help simplify your life. With the advanced and new-age features available, keeping track of the transactions has become easy. This also helps keep the books clear regularly. The automation and other relevant features can help generate key financial statements, like the balance sheet P&L statements, etc. The software not only helps in tidying up the books but also helps streamline the way you manage them and gives access to your financial data at your fingertips.
- Conduct a final analysis:
After you have completed your clean-up process, make sure to review your financial statements and ensure that they reflect your business’ current status accurately. This step also helps check for consistency and accuracy in the statement. It will also give a clear understanding of the current cash flow status.
You can also use analytical processes. This helps analyze and spot any unusual patterns and discrepancies in your financial data. Investigate and resolve them as quickly as possible. In case you are seeking external verification processes, consider seeking an external review or audit to provide an independent assessment of the records.
Comprehensive bookkeeping clean-up – Conclusion:
Clean-up of your books and accounts is extremely useful in maintaining accurate and compliant financial records. Regular clean-ups are much like maintenance. They help enhance the health and stability of a business, giving a clear picture of the current scenario. It also helps firm leaders strengthen their business by making the right decisions.
Although much-needed, clean-up can take up a lot of your time. Considering outsourcing for your bookkeeping clean-up projects can help save time, and resources while keeping the financial health of your business intact. To know how outsourcing can help, write to us at connect@finsmartaccounting.com.
Director Growth Strategy & Alliance
Maanoj Shah is a finance and outsourcing expert with strong Business Strategy and Scaling-up experience. Over the last 20 years, he has incubated multiple businesses and helped build global enterprises in verticals as diversified as hospitality, technology, and healthcare.
