How to Clean Up Your Books After a Bookkeeper Mismanaged Them
How Can I Clean Up My Books?
To clean up your books, you should start by having the records reviewed before changing or deleting anything.
A qualified bookkeeper can identify which periods were affected, reconcile your bank and credit card accounts, review income and expenses, and check whether payroll, GST/HST, loan balances, and prior filings agree with your bookkeeping records.
From there, the problems should be corrected in order of urgency, starting with overdue filings, remittances, or CRA requests.
Then, once the cleanup is complete, regular reconciliations and report reviews can help prevent the same issues from returning.
Key Takeaways:
Deal with urgent compliance issues first.
Review the existing file before making corrections.
Reconcile bank and credit card accounts before relying on the reports.
Gather bank statements, payroll reports, invoices, receipts, and filing records.
Work with a qualified bookkeeper when prior filings or several periods may be affected.
You may not realize that there’s a problem with your books until someone else takes a closer look.
Your accountant may start questioning numbers that don’t match, you may discover that bank accounts were never reconciled, and you might even find out that your payroll, GST/HST, or loan balances were recorded incorrectly for months.
No matter how you slice it, that is a difficult position to be in, especially when you hired someone because you trusted them to handle the work properly.
Once that trust is broken, you’ll start asking questions like:
Can the reports still be used?
How far back do the problems go?
How much will this cost to sort out?
Has anything been filed incorrectly?
At this point, you might be tempted to jump right in and start making the necessary changes, but the truth is the best way to clean up your books is to start by resisting the urge to start changing things right away.
First, you need to understand what happened, which records are affected, and what needs attention most urgently.
From there, the cleanup can be handled in a way that restores accurate records and gives you better information to work with.
With that in mind, here’s what you need to know when it comes to cleaning up your books.
What Mismanaged Books Look Like
Mismanaged books don’t always involve one obvious error.
Problems may include bank accounts that were never reconciled, expenses recorded in the wrong categories, duplicate entries, missing income, or loan balances that weren’t updated.
Payroll and GST/HST records may not agree with the amounts paid or remitted, and your chart of accounts may also be structured in a way that hides important information or gives you a distorted picture of your costs and profits.
When you’ve got mismanaged books, you can’t rely on them to make decisions, and that’s a problem that must be addressed.
Signs You May Need to Clean Up Your Books
Bookkeeping problems often come to light when someone needs an answer quickly.
Your accountant may ask for information that can’t be confirmed, a lender may request statements that don’t make sense, or you may notice that the income, expenses, or balances in your reports don’t match what you know about your business.
Other warning signs include things like:
Bank and credit card balances that don’t match your statements
Reports that change significantly after small corrections
Payroll totals that don’t agree with remittances
GST/HST reports that don’t line up with sales
Negative or unusually high account balances
Repeated requests for missing documents
Uncertainty about what’s been filed
Start With an Assessment
When business owners discover errors, they often want to start correcting things immediately.
But that can just create more confusion.
One transaction may affect several accounts, reports, or filing periods, and deleting it or moving it without understanding the history behind it can make the original problem even harder to trace.
So, the first step should be a review of your existing records. A qualified bookkeeper can identify which periods are affected, whether the main accounts have been reconciled, and whether payroll or GST/HST information agrees with what was filed.
They can also determine which issues need immediate attention and which can be corrected through a planned cleanup.
An overdue remittance or active CRA request may need to be handled first, whereas a poorly organized expense account probably won’t carry the same urgency.
Gather the Records That Support the Cleanup
The person reviewing your books will need access to all the records that are relevant to your bookkeeping file.
So, make sure to gather as many of the following documents as you can:
Bank and credit card statements
Sales and supplier invoices
Expense receipts
Payroll reports
GST/HST returns
Loan documents
Prior financial statements
Tax filings
CRA correspondence
Backups of the bookkeeping file
Make sure to keep the original file intact until it’s been reviewed.
Having this kind of backup protects the information and gives the professional you’re working with a record of how entries were originally handled.
And it’s important to mention that missing documents don’t always make this kind of cleanup impossible, as bank statements or other third-party records may help confirm what happened.
A professional bookkeeper can also tell you which missing items matter most, so you don’t waste time searching for records that won’t change your situation.
Correct the Problems in the Right Order
There’s rarely one adjustment that will fix messy books.
Cleanup work usually follows a sequence so that each correction rests on information that’s already been confirmed.
Doing things in that order is extremely important because bookkeeping entries connect to one another.
A wrong bank balance can affect expenses, an incorrect payroll entry can affect remittances, and a misclassified loan payment can distort both your balance sheet and income statement.
But if you work through the file in the right order, it’ll help you prevent one correction from creating another problem.
Address Urgent Compliance Issues
Start with overdue filings, payroll remittances, GST/HST obligations, or current CRA requests.
Handling these items early can help prevent further interest, penalties, or correspondence while the rest of the cleanup continues.
What’s more, it also shows you what must be dealt with right away and what can wait until your records are fully reviewed.
Reconcile Bank and Credit Card Accounts
Statements provide an independent record of money moving through your business.
Reconciling, on the other hand, allows you to identify missing transactions, duplicates, unrecorded fees, and payments that were entered incorrectly.
But until these balances agree, it’s difficult to know whether the remaining reports are complete.
This step often reveals where the cleanup needs to go next, as an unresolved difference may point to a missing deposit, an expense entered twice, or a payment applied to the wrong account.
Review Income and Expenses
Once your main accounts have been reconciled, income and expense entries should be reviewed.
The bookkeeper may need to confirm that sales were recorded in the right period, expenses were categorized properly, and personal transactions were separated from business activity.
In any case, they should also look for entries that don’t fit the usual pattern of your business, as an unusually high expense category or a sudden drop in recorded income may signal that transactions were recorded incorrectly.
Check Payroll, GST/HST, and Loans
Payroll reports should agree with what employees were paid and what was remitted.
GST/HST records should match the relevant sales and purchase information, and loan balances should reflect the actual amount owing, with payments divided correctly between principal and interest.
These areas need careful review because errors can be carried forward into later periods and affect both reporting and compliance.
Review Your Chart of Accounts
A poorly structured chart of accounts can make accurate transactions hard to understand.
For instance, broad categories may hide where costs are increasing, duplicate accounts may split related expenses across several places, and the cleanup may need to reorganize these accounts so future reports can provide reliable answers to business-related questions.
Handle Prior Periods Carefully
Some corrections may affect information that has already been filed.
Your bookkeeper may need to work with your accountant or tax professional before changing those periods.
This helps keep the bookkeeping records consistent with any amended filings or adjustments that may be required.
How Long Will the Cleanup Take?
Ultimately, the timeline will depend on the condition of your records.
A business with a few months of unreconciled accounts may need a short, focussed cleanup, but a company with several years of incorrect balances, missing documents, and filing issues will require significantly more time.
A proper assessment should give you a clear scope, a list of priorities, and a reasonable estimate of the work involved.
And you should be cautious of anyone who promises a quick cleanup before reviewing your file, as they can’t possibly know how much work is required until they see what’s been recorded and what’s missing.
Protecting Your Business After the Cleanup
Once you clean up your books, you should put a process in place to prevent the same problems from happening again.
This includes things like:
Asking for regular reports and taking time to review them
Confirming that bank and credit card accounts have been reconciled
Keeping copies of filing confirmations and making sure you know which remittances have been completed
And you should ask questions whenever something doesn’t make sense.
You don’t need to review every transaction yourself, but you should still be able to understand what the reports are telling you and receive a clear explanation when a number looks unusual.
You should set expectations with your bookkeeper about things like communication, deadlines, document storage, and who is responsible for each part of the process.
Choosing the Right Person to Fix Messy Books
After a poor experience, handing your financial information over to someone new may feel incredibly uncomfortable.
To protect your peace of mind, make sure to look for a professional who will review your records before offering a quote or coming to any conclusions.
They should explain what they find in plain language and tell you which issues need attention first.
They should also be willing to coordinate with your accountant when corrections affect previous filings.
And make sure to pay attention to how they respond to your questions, as you shouldn’t feel judged for wanting to understand what happened or why a correction is necessary.
Discovering that a bookkeeper mismanaged your records can be upsetting, but leaving the problem unresolved makes it harder to know where your business stands.
Make sure to start with a careful assessment, identify urgent issues, gather the available records, and work with a qualified bookkeeping professional to build a cleanup plan based on what your business actually needs.
Looking to clean up your books after a previous bookkeeper messed everything up?
Book a free consultation today and let’s talk about how we can help.
