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How do you find and fix bookkeeping errors during cleanup?

Posted on 09/05/2024

There’s a reason why spring cleaning is a household staple. Things can become quite disorganized over time, especially when you’re busy. In business, the same thing can happen with your accounting books. Do you need to tidy up your books? To get started, refer to our bookkeeping cleanup checklist.
This article will cover the following:

  • Why is bookkeeping bad for business?
  •  Ways to Fix Poor Bookkeeping: Six Tips
  • Bookkeeping cleanup checklist
  • Why is bookkeeping bad for business?

What’s the big deal if your books are a little messy? Messy, incomplete, and inaccurate bookkeeping can cause various problems that cost more than just time. Bad bookkeeping can also result in costly IRS penalties and (gasp!) audits.

The following are specific challenges that may arise due to disorganized bookkeeping:

Having trouble getting business loans or investments

  • Inaccurate financial picture and excessive withdrawals.
  •  Missed opportunities (such as tax deductions or credits)
  • Penalties for inaccurate filings.
  • Inability to locate key records.
  • Wasted time.
  • Inconsistencies in your records.

Simply put, poor bookkeeping puts your time, money, and potentially even your company at risk. If you’re experiencing any of the issues listed above, it may be time to give your books some TLC.

Everyone makes mistakes. However, accounting errors cost your company time and money. Download our free PDF guide to learn how to avoid these ten common accounting errors.

Six Tips: How to Fix Bad Bookkeeping:

If you struggle with disorganization in accounting, you must understand how to correct poor bookkeeping.

Check for data entry errors.

You must keep track of all business transactions. And let’s be honest: there’s a lot to record. So, from time to time, you may encounter data entry errors.
A data entry error occurs when you enter inaccurate information into your books. This could be caused by errors such as:

  • Flipping between debits and credits
  • Making transposition errors (e.g., writing 24 instead of 42)
  • Entering the incorrect numbers

Check for data entry errors to clean up and organize your books. You can detect these types of errors by double-checking your work and creating trial balances at the end of each reporting period.

At some point, you might make the opposite of a data entry error. An omission error occurs when you forget to record a transaction. Failure to record every transaction causes problems in your books (also known as bad bookkeeping).

Examine your records (such as receipts) to correct bad books caused by omissions. Record any omitted entries in your books for the appropriate accounting period.

Read More: Common Bookkeeping Mistakes: How to Avoid Them

Reconcile accounts.

How frequently do you reconcile your accounting accounts (such as assets)? If you do not reconcile your books with your external account balances (for example, a bank account), you will end up with bad books.

Reconciling your accounts is the process of comparing what you record in your accounting books to what appears on your bank or credit card statement.

The transactions should match. If they don’t, change your records to match your bank or credit card statement with your accounting entries.

For instance, you might need to modify your books to include:

  • Bank Service Fees
  • Insufficient funds checks
  • Interest earned.

Similarly, you may need to adjust your bank statement balance for:

Deposits in transit (i.e., increase the bank statement balance with the deposit in transit amounts)

Deduct the amount of the outstanding checks from the balance on the bank statement.

So, how often should you reconcile bank statements? Try to reconcile your accounts once a month to keep your books in order.

Create adjusting entries.

Adjusting entries is critical for ensuring that transactions are recorded in the appropriate accounting period. Again, you must make them after identifying data entry errors and reconciling your books.

You can also use adjusting entries to record depreciation and amortization, an allowance for doubtful accounts, and accrued revenue or expenses.

There are three adjusting entry categories:

  • Accruals are revenues or expenses that have not been recorded, received, or paid.
  •  Deferrals: Revenues or expenses that have been recorded but not yet earned or utilized
  • Estimates: Non-cash items, such as an allowance for doubtful accounts.

Prepare to adjust entries in the same way you would regular journal entries. Simply debit one account and credit another.

Check for duplicates.

  • Spring cleaning is a time to declutter. You know, getting rid of duplicate items you might not need.
  • The same applies to your bookkeeping clean-up checklist. Find and remove duplicates to reduce unnecessary clutter and protect your books from errors.
  • A duplicate journal entry can indicate whether you have more or less money than you do. Account reconciliation will help you find duplicates.

Consult with an accounting professional.

Sometimes you’re too busy to do accounting cleanup. Or you may be unsure of what you can do to fix them. An accounting professional can assist you in reorganizing and cleaning up accounting records.

Hiring an accountant can help.

  • Free up your time.
  • Increase the accuracy of your books.
  • Give you peace of mind.
  • Fix accounting errors.

Bookkeeping cleanup checklist

When it comes to cleaning up your books, make a checklist to help you keep track of what needs to be done and cross items off your to-do list. To get started, see our bookkeeping cleanup checklist below.

  • Look for data entry errors.
  • Reconcile your accounts
  • Create adjusting entries.
  • Look for duplicates.
  • Improve how you manage your books.
  • Consult an accounting professional.

Our Bookkeeping Experts are here to help.

Topics: Bookkeeping Services




About the Author:

Pramod has over 11 years of experience relating to finance and accounts in diversified industries. He is an expert in resource and process optimization resulting in greater operational efficiencies.

Author can be reached at [email protected]

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