Bookkeeping cleanup checklist: Streamline your financial processes

A step-by-step bookkeeping cleanup can make a significant difference, ensuring that your business is ready for growth, tax time, and potential investments. Addressing this challenge head-on will bring peace of mind and promote long-term financial health.

1. Collect all your financial records.

Collecting all past financial records can be one of the most time-consuming tasks, depending on the type of business. Start with bank statements, receipts, invoices, and other related financial records.

• ‍Email search. Begin by examining your email, which is a natural storage for electronic purchases. Sort emails by date or keyword to locate relevant records. Download, print, or screenshot all receipts and store them physically or electronically, such as on Google Drive.‍
• Vendor and client inquiries. If your records still need to be completed, contact vendors or clients you've worked with over the past year. They may have transaction details or invoices you lack. Request a printout or digital copy of all transactions and invoices they have on file.‍
• Bank and credit card statements. Next, review bank and credit card statements. List any transactions you lack records for, and be prepared to trace those details. If a third-party payment processor was used, review those transactions too.‍
• Accounting software review. Log into your accounting software and verify if bank feeds are connected and if any transactions are missing. Update any records that are out of date.‍
• Physical records. Don’t forget physical records. Search through them and organise accordingly. They might fill gaps in your electronic records.

Missing records strategy

If certain purchase or invoice records are missing, take the following steps:

• Contact vendors or suppliers to provide the missing documents.
• Recreate invoices using available information and records.
• Use estimates based on historical data if necessary.

With all parts of your financial puzzle gathered together, move on to the next part of your bookkeeping clean-up checklist: categorisation. This ensures your business finances are in order, reducing potential errors and easing future audits.‍

2. Categorise transactions

When it is time to categorise transactions, maintaining consistency is essential. The chart of accounts lists the types of categories or accounts used to classify each transaction. Small businesses should keep this list concise, typically with no more than 10-15 categories. Often, bookkeeping software offers a solid starting point for creating a chart of accounts.

Categorising similar transactions into the same account helps streamline the recordkeeping process. It is important to be clear about the purpose of each transaction. For example, instead of using a generic label like “supplies,” it can be more informative to use labels such as “production supplies” or “marketing supplies.”

This precise categorisation is crucial for obtaining accurate financial reports and impacts tax preparation significantly. Reviewing past transactions to ensure they are correctly categorised, and updating those that are not, is an important accounting task.

Some bookkeeping software like Thriday offers automatic categorisation of transactions as they occur, which aids in keeping the records current. This feature can be incredibly useful, especially for consistently recurring transactions like credit card payments and accrued revenue. 

With Thriday’s AI, your expense tracking becomes effortless. Receipt data is automatically extracted and matched to transactions, eliminating manual reconciliation and rule creation.

3. Reconcile bank statement

Regularly reconciling your bank statements is like giving your finances a health checkup. It ensures your records are accurate and helps you catch errors before they become major problems. Thriday makes this even more accessible with seamless receipt reconciliation from anywhere.

Here's how to perform a thorough reconciliation with Thriday:

1. Gather your records: Collect your bank statement and the corresponding period's financial records from your accounting software.
2. Match transactions: Carefully compare each transaction on your bank statement to the transactions recorded in your accounting system. Thriday automatically reconciles receipts to bank account transactions, eliminating manual work.
3. Scan and send receipts: Scan, send, and save receipts on the go with Thriday's mobile app or web interface. Set up smart email forwarding rules to automatically send receipts directly to your Thriday inbox for easy tracking.
4. Identify discrepancies: If you find any differences (e.g., missing checks, unrecorded deposits, incorrect amounts), make a note of them.
5. Investigate and correct: Research any discrepancies. Did you forget to record a transaction? Was a check entered incorrectly? Make the necessary adjustments in your accounting software.
6. Ensure a perfect match: By the end of the reconciliation process, the balance in your bank account should match the balance shown in your accounting software.

Pro tip: Aim to reconcile your accounts monthly. This keeps your financial information up-to-date and helps you identify any issues quickly. Consistent reconciliation is the key to maintaining accurate financial records and avoiding unpleasant surprises down the road.

4. Adjust entries

Adjusting entries is essential in bookkeeping cleanup. These adjustments ensure that account balances are accurate and reflect the true financial state of the business. Adjusting entries are made at the end of an accounting period and are crucial for precise financial statements.

Accruals are one of the key areas for adjustment. They represent expenses incurred but still need to be paid or recorded. Examples include wages owed to employees, interest on loans, or lease rent. Adjusting for these ensures that expenses are recognised in the period they are incurred.

Another vital adjustment is depreciation. This relates to the allocation of asset value over its useful life. Assets like computers, printers, vehicles, and machinery lose value over time. Depreciation entries ensure that this decrease in value is accurately shown on the balance sheet.

Amortisation is similar to depreciation but applies to intangible assets. These assets, such as patents, copyrights, and trademarks, are spread over their useful life. Making these adjustments ensures that the cost allocation of these assets is represented correctly in financial data.

Prepayments need adjustments as well. These are payments made in advance for services or goods not yet received, such as paying for a full year of insurance coverage upfront. Adjustments ensure that these prepayments are recognised over the period they cover rather than all at once.

Accrued revenue also requires adjustments. This reflects revenue earned but not yet received. If a business provides services in one period but gets paid in the next, the revenue must still be recorded in the period the services were rendered. This ensures the financial statements present an accurate picture of revenue.

These adjustments can be complicated and technical. Missteps can lead to discrepancies in financial reporting, so seeking professional help is advisable.

5. File your taxes

Meeting your tax obligations is essential for every business. Whether you've filed for an extension or it's time for your quarterly Business Activity Statement (BAS), organised bookkeeping ensures accurate and timely payments.

Thriday simplifies BAS lodgement for GST-registered businesses. It automatically enables the BAS feature in the Tax menu, while non-GST businesses are notified they cannot lodge through the platform.

Thriday sends timely reminders for your BAS lodgement based on your reporting frequency (monthly, quarterly, or annually). You can also lodge and pay directly through the Australian Taxation Office (ATO) or have your accountant assist you.

Book a call with us today for more information. 

6. Establish a new bookkeeping system

When addressing a bookkeeping cleanup effort that has lasted over 12 months, updating your current systems is crucial to avoid repeating the situation. Every business has different needs, so focusing on areas where you struggle the most is essential.

Consider adopting an accounting and bookkeeping software such as Thriday that can:

• Automatically connect payment processors and bank feeds.
• Send invoices and collect payments.
• Electronically store receipts
• Run financial reports like balance sheets, income statements, and cash flow statements to gain insights into your financial health.

Consistency is key. Setting a specific day on your calendar, using alarms, or having an accounting accountability partner will help you stick to a regular schedule. Notably, Thriday offers features that can enhance your workflow and efficiency.

Frequently asked questions

How can I effectively correct inaccuracies in my accounting records?

To correct mistakes in your accounting records:

• Identify errors: Regularly review and compare records against bank statements to spot discrepancies.
• Correct entries: Use accounting software to amend any incorrect entries.
• Document corrections: Maintain a log of all changes made for future reference.

What are the essential items to include in a monthly bookkeeping checklist?

A monthly bookkeeping checklist should cover the following:

• Reconcile bank accounts: Ensure all transactions match the bank statements.
• Review financial statements: Analyse profit and loss statements, balance sheets, and cash flow statements.
• Update accounts receivable and payable: Track incoming and outgoing payments.
• Record expenses: Log all incurred expenses accurately.
• Prepare for taxes: Organise documents and records needed for tax obligations.
• Backup data: Securely back up all financial data.

In bookkeeping, what constitutes a 'cleanup' and when is it necessary?

A bookkeeping 'cleanup' refers to the process of bringing disorganised or outdated financial records up to date. This becomes necessary when:

• Health check: Regular audits reveal inconsistencies.
• Tax preparation: Before filing taxes to ensure accuracy.
• Business transition: When changing ownership or preparing for a sale.
• Software migration: Moving to a new accounting software.

What methods should be used for catch-up bookkeeping if financial records are significantly outdated?

For catch-up bookkeeping on outdated records:

• Prioritise data: Start with the most recent records and work backwards.
• Use software: Utilise AI-integrated accouting software like Thriday to automate data entry and reconciliation.
• Set milestones: Break the task into smaller, manageable goals to track progress.

Get caught up now

Mistakes in your books may seem minor, but they can build up and cause major problems like disorganisation or accounting mistakes. This can lead to errors of omission or even fraud if not addressed. 

Thriday can work behind the scenes to:

• Reconcile effortlessly: Say goodbye to manual data entry and the risk of human error. Thriday automatically matches receipts to transactions, ensuring accurate and up-to-date records.
• Organise your finances: Your financial data is centralised in one secure location, making it easy to access, track, and analyse. No more searching through stacks of paper or multiple spreadsheets!
• Simplify tax prep: Thriday generates comprehensive reports that are ready for your accountant, saving you valuable time and ensuring a smooth tax filing process.

Your past bookkeeping mistakes don't have to define your financial future. Start fresh with Thriday and experience the benefits of accurate, efficient bookkeeping. Tax season will be a breeze – you might even look forward to it!

‍