A Step-by-Step Guide for Performing a Bookkeeping Clean up (+Free Checklist template)

There are many reasons why a business might need a bookkeeping cleanup. Perhaps they’re preparing for tax season, undergoing an external audit, planning to sell or merge the business, migrating to new accounting software, or seeking funding. Whatever the reason, one thing is certain: they need to tidy up their books or risk wrong decision-making, compliance issues, and missed opportunities.

That’s where accountants and bookkeepers come in. Many businesses lack the time, expertise, or resources to handle this task independently, so they turn to firms like yours to bring order to their financial chaos. A thorough bookkeeping cleanup ensures that their records are accurate and up to date and allows them to make informed decisions.

In this article, we’ll walk you through a step-by-step guide to performing a bookkeeping cleanup for your clients. We’ll also share a free checklist template to streamline the process so you can do a great job for clients.

What is a Bookkeeping Cleanup?

A bookkeeping cleanup is the process of reviewing, correcting, and organizing a business’s financial records to ensure they are accurate, complete, and up-to-date. It is necessary to fix past mistakes, catch up on missed entries, and get everything in order for a fresh start.

For example, let’s say a client hasn’t recorded their expenses for the last six months, leaving their profit-and-loss statement completely off. Or maybe they’ve been categorizing personal expenses as business expenses, creating messy records that don’t reflect reality. In both cases, a bookkeeping cleanup is essential to untangle the chaos, identify errors, and get the books back on track.

This process might include correcting miscategorized transactions, adjusting or posting journal entries,  reconciling bank statements, and ensuring compliance with tax regulations. By the end of the cleanup, your client’s books will be accurate, balanced, and ready for any upcoming audits, tax filings, or business decisions.

Step-by-Step Checklist Guide to Perform a Bookkeeping Cleanup

Now that we’ve covered the basics let’s look at the step-by-step process for performing a bookkeeping cleanup. Following this clear and structured process will save time, reduce errors, and ensure the best outcome.

Step 1: Gather all Necessary Financial Documents

Before you can start cleaning up the books, you need to collect all the financial records related to the business. This includes bank and credit card statements, bills and invoices, receipts, payroll reports, loan and financing documents, and other relevant financial data.

Ensure you cover all the client’s accounts (business checking, savings, credit cards, loans) and financial activity. Otherwise, you’ll miss some documents, resulting in incomplete or inaccurate records, which defeats the purpose of the cleanup.

Step 2: Review and Categorize Transactions Accurately

The next step is to review and categorize all transactions carefully. Proper categorization ensures the client’s financial statements are accurate and provide meaningful insights into their business performance.

If your client uses an accounting ledger software such as QuickBooks, Xero or FreshBooks, your client can grant you access to their account, enabling you to review their financial transactions and match and post from their connected bank feeds.

Or manually create spreadsheets of your client’s transactions, audit them for inconsistencies, and then categorize them to align with tax filing requirements and the client’s specific reporting needs.

Step 3: Address Discrepancies or Missing Transactions

During a bookkeeping cleanup, it’s common to encounter discrepancies or missing transactions. These issues can arise from forgotten entries, incomplete records, duplicate records, or miscommunications about business expenses.

Find these contradictions by comparing transaction records across bank statements, receipts, and the accounting system. Look for mismatches in amounts, duplicate entries, or transactions that appear in one record but not the others. Also, cross-check with other supporting documents like invoices, receipts, or client-provided notes to locate missing transactions.

Once you’ve identified them, ask the client for clarification, supporting documents, or context to fill in the gaps. Then, correct the errors and document your findings for future reference.

Step 4: Review Accounts Receivable and Accounts Payable

Accounts receivable (AR) and accounts payable (AP) directly impact your client’s cash flow and financial health. Hence, it’s essential to review them to ensure they’re accurate and up-to-date.

For AR, verify all outstanding invoices and follow up on past-due ones. Collaborate with your client to decide whether to write off invoices that are unlikely to be paid as bad debt.

For AP, confirm that all unpaid vendor bills are accurate. Identify and correct duplicate invoices or vendor overpayments, ensuring expenses aren’t inflated. Help the client prioritize payments to avoid late fees and maintain strong vendor relationships.

Ensure that AR and AP balances match the amounts in the general ledger. Address and resolve any discrepancies to keep financial records accurate and reliable.

Step 5: Ensure Payroll Records Are Accurate and Up-To-Date

Payroll errors can lead to tax penalties, compliance issues, and unhappy employees, making reviewing payroll records during a cleanup crucial.

Start by examining payroll summaries, timesheets, and pay stubs to confirm whoever is in charge accurately recorded all employee and contractor payments, including wages, bonuses, overtime, and deductions.

Then, the payroll expenses in the accounting system are matched with bank statements and payroll provider reports, ensuring that tax withholdings and benefit payments align. Record and address any unpaid payroll liabilities, such as taxes or contributions.

If you notice missing records, collaborate with your client to gather and document them. Taking these steps ensures payroll records are complete and accurate.

Step 6: Reconcile Bank and Credit Card Accounts.

Once you’ve gathered all the necessary financial documents, reconcile the business’s bank and credit card accounts. Reconciliation involves comparing the transactions recorded in the accounting software to the actual statements from the bank or credit card provider to ensure they match.

To do this, first confirm that the opening balances in the accounting software align with the beginning balances on the bank or credit card statements. Then, go through each transaction in the statements and ensure they are recorded correctly in the books. Look for missing entries, duplicate transactions, or errors in categorization. If there are any mismatched amounts, investigate and resolve the differences.

Common issues include unrecorded bank fees and expenses, or payments that cleared later than expected. Once you’ve addressed all issues, reconcile each account to ensure the ending balances in the software match the statement balances.

Step 7: Verify Tax Compliance

Ensure your client meets all tax obligations, including sales tax, income tax, and payroll tax, to help them avoid penalties and maintain compliance with tax authorities.

Start by reviewing sales tax records. Confirm that all sales transactions reflect the correct tax rates and that the sales tax collected matches what was reported to tax authorities. Address any unpaid or overdue sales tax filings promptly.

Next, income tax accuracy is verified by cross-checking the business’s income and expense records with what has been or will be reported. Identify any missed or misclassified deductible expenses and make the necessary adjustments.

Audit payroll tax filings to ensure all payments and filings are completed on time and accurately reflect wages paid. Resolve any penalties resulting from late or incorrect filings.

Reconcile tax liabilities in the accounting software with amounts paid and any outstanding balances. Resolve these inaccuracies with the client and update the records accordingly.

Finally, confirm all tax forms, such as W-2s, 1099s, and sales tax reports, are accurate, filed, and properly documented for future reference.

Step 8: Generate Financial Reports To Check Accuracy

You’re almost done with the cleanup at this point. The next step is to generate and review the financial reports to confirm that everything is accurate and balanced. These reports offer a clear view of your client’s financial health and validate that the cleanup has resolved all discrepancies and gaps.

Run key reports like the Profit and Loss (P&L) Statement, Balance Sheet, and Cash Flow Statement to ensure you’ve correctly recorded income, expenses, assets, liabilities, and cash movements. Look for trends or inconsistencies, such as unusual expenses or negative balances, and correct any errors you uncover. Use this step as a final quality check. If anything seems off, revisit earlier cleanup steps to resolve overlooked issues.

Step 9: Share Reports With Client

After completing the bookkeeping cleanup and generating the reports in step 8 above, share them with your client for transparency and to help them understand their financial standing.

Include a summary of the cleanup, highlighting major issues resolved, key insights from the reports, and areas needing attention moving forward. Offer practical recommendations for maintaining clean books, such as regular reconciliations, better documentation practices, or adopting automation tools.

Also, offer to schedule a follow-up meeting to review the reports together. This helps address any questions, strengthens trust, and reinforces your value.

Download: Free cleanup Checklist Templates

Here are some free templates created by other bookkeeping and accounting professionals that will assist you in your bookkeeping cleanup.  Download them via the link below and start using it immediately.

1. Bookkeeping Clean up

This is a clean up checklist template created by a bookkeeping firm owner, Jenny Rost, owner of Construct Bookkeeping. It includes the step-by-step process of performing clean ups, from the prep up and set up to the chart of accounts and all other necessary steps involved.