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How to Review Your Books: A 7-Step Process

How to Review Your Books_ A 7-Step Process


Around mid-January, we were inundated with questions and corrections about why certain transactions were categorized a certain way, why income was high, or why certain accounts were created without a client’s approval.

It was almost as if Uncle Sam rang his bell and everyone decided to look at their books for the first time since last year.

Don’t get me wrong—we openly welcome your questions, comments, and concerns at any time regarding your books. We also understand everyone runs their business differently, and we are more than happy to do year-end corrections if you only get into your books a few times each year.

But (yes, there’s a but), might we suggest a New Tax Year Resolution? Now that this tax season is over, we want to encourage more consistent and timely review of your books.

Having to get it all done right before filing taxes is daunting to say the least! We don’t want to delay in getting you the information needed to complete your return or cause undue stress as we work to meet filing deadlines.

We thought it might be useful for everyone, not just our clients, to have a generic review process. Below, we outlined seven to-dos to check off your list regularly to make sure your books are on track.  

Step #1. Make Sure All Accounts are Reconciled

Without a doubt, all credit cards, lines of credit, checking, and savings accounts should be reconciled on a monthly basis.  

A reconciliation essentially looks at the balance on your bank statement on a given day and compares that to the balance showing on your balance sheet.  

After reconciling, you can run a report showing all transactions that cleared during that given period as well as transactions that didn’t clear, such as checks written but not cashed.

If the balances don’t match, you won’t be able to finish the reconciliation and more work will need to be done to figure out why.

This is a good way to see if any transactions have been duplicated, or if any expenses are missing. There are a lot of good tutorials online that show how to reconcile your bank accounts. Better yet, Quickbooks Online makes this super simple for you! 

Step #2. After Reconciling, Actually Compare the Bank Statement Balance to the Balance Sheet

Did you know that you can have uncleared transactions sitting in the bank register online that are affecting your bank balance?

If these have been sitting for a while, it might be best to see why they haven’t cleared.

If they’re over a couple of months old, you can usually delete them to correct the balances.

Note: Be careful deleting transactions as you may inadvertently delete a transfer that has cleared one account but that wasn’t recorded correctly. This is why we reconcile! 

Step #3. Do You Invoice Out of QBO? Then Be Sure to Run an Accounts Receivable Aging Summary Report

Not only should you run an accounts receivable (A/R) aging summary report, but you should also look at your A/R balance on the balance sheet. Usually a quick check will suffice. Are all of the invoices on there still outstanding? Have any of them been paid? Are there open invoices from last year?  

If something doesn’t look quite right, be sure to look back through your records to make sure payments and deposits were applied properly. If an invoice is deemed uncollectible, you should get it off your books.

There is way more to this topic than we can cover in this blog post so be sure to reach out if you have questions on the proper invoicing process in Quickbooks.

And always beware that you’re not double counting income! 

Step #4. Look at Liabilities

This is definitely the most overlooked section on the balance sheet.

If you are running payroll, be sure to review. Look for building balances, balances that don’t ever go away, or a negative balance.

If any of these apply to you, then you should spend some time figuring out why. Maybe your payroll liabilities aren’t getting paid to the state. Or is it possible that your IRA custodian includes their service fee in the amount you apply to the liability account each month?

Whatever the case may be, you need to look for those indicators. If everything zeroes out each month and liabilities aren’t building, you’re golden.

Step #5. Look at the Equity Section of Your Balance Sheet

We want to ensure that owner contributions are recorded here and aren’t showing up as income. On the contrary, we want to ensure income isn’t being credited to an equity account.  

If you paid for a personal expense on a business card (it’s okay, it happens a lot) rather than excluding it or showing it on the profit and loss as an expense, move it here as a distribution. Equity accounts are used to show contributions and distributions going from an owner or partner into the business, as well as retained earnings from prior periods.

Remember, the types of accounts that show up in the equity section may vary depending on the entity structure.

Step #6. If You Have QBO Essentials or Plus, Be Sure to Check Out the Profit and Loss Detail

We use this report to check for consistency. When you run the report, it will typically be YTD, meaning from January 1–the current date.  

Look at each account. Are all dues-type-transactions to XYPN categorized the same every month?

You should be looking for the monthly subscription type expenses and making sure they show up the same way each month.

But how do you check for consistency when transactions don’t occur every month? Glad you asked. Click expenses and go to the vendor tab. Simply type the vendor name you want to investigate and a list of all transactions tied to that vendor will show up. 

Note: This will only work if you add a payee (vendor) to each transaction. 

Step #7. Check Out a Month-to-Month Comparison on the Profit and Loss

This report is fun because it shows how much your business has or has not grown. It also allows you to pick up potential income recording errors.

If income should have been recorded in a different period, this is the report where you will see that comparison between periods and be able to make an adjustment.  

We do our best to categorize everything consistently and compliantly. Focusing on one industry enables us to know what most expenses are for and the many ways that advisors make money.

But we can’t read your mind or understand the substance of every transaction. So when your bookkeeper tells you your books are complete, do a quick review to catch any errors early and often. I can promise they will appreciate your feedback and the fact that you actually look at your books.

Click here to contact the Bean Team! 

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