How Do Bookkeepers Go About Cleaning Up Financial Statements?
Maintaining accurate financial statements is essential for making sound business decisions, preparing taxes, and staying compliant. But over time, errors, inconsistencies, or incomplete records can pile up — especially in businesses that juggle many transactions or lack consistent bookkeeping practices.
When this happens, bookkeepers step in to perform a financial statement cleanup — a systematic process of reviewing, correcting, and reconciling your records so that they reflect the true financial health of your business.
In this article, we’ll walk through how bookkeepers approach cleaning up financial statements, why it matters, common problem areas, and what you can expect during the process.
Why Financial Statement Cleanup Is Important
A cleanup ensures:
Accurate decision-making — Business owners rely on correct data to make informed decisions about budgets, investments, and operations.
Compliance with tax laws — Inaccurate records can cause errors in tax filings, leading to penalties or audits.
Improved cash flow tracking — Clean books reveal true cash positions and help manage expenses more effectively.
Investor and lender confidence — Financial statements are often required for loans or funding, and clean, organized records build trust.
Step-by-Step: How Bookkeepers Clean Up Financial Statements
1. Initial Assessment and Review
The bookkeeper starts by evaluating the current state of the books. This involves:
Reviewing the balance sheet, income statement, and cash flow statement for unusual entries.
Identifying missing transactions or incomplete records.
Checking for unreconciled accounts, especially bank and credit card accounts.
Goal: Understand the scope of the cleanup and develop a plan of action.
2. Reconciling Bank and Credit Card Accounts
One of the most common issues in messy books is unreconciled accounts. The bookkeeper will:
Match transactions in the books with bank statements.
Identify and correct discrepancies such as missing deposits, double entries, or incorrect amounts.
Ensure all accounts are reconciled up to the most recent statement.
3. Reviewing Accounts Receivable (A/R) and Accounts Payable (A/P)
A/R Cleanup: Removing outdated unpaid invoices, correcting customer balances, and ensuring payments are applied to the right invoices.
A/P Cleanup: Ensuring vendor bills are entered correctly, marking paid bills accurately, and removing duplicates.
4. Correcting Categorization Errors
Transactions may be posted to the wrong accounts (e.g., classifying an asset purchase as an expense). The bookkeeper will:
Reclassify transactions into correct expense, income, asset, or liability accounts.
Ensure tax-related items (sales tax, payroll tax) are posted accurately.
5. Adjusting Inventory and Assets
For businesses that carry inventory or own fixed assets:
Updating inventory counts and adjusting for shrinkage, losses, or write-offs.
Recording depreciation on assets.
6. Reviewing Payroll Records
Payroll errors can cause tax reporting issues. The cleanup may include:
Reconciling payroll expenses with payroll tax filings.
Correcting misclassified employee/contractor payments.
7. Preparing Adjusting Journal Entries
Once all discrepancies are identified, the bookkeeper will post adjusting entries to bring accounts into alignment. This step ensures your financial statements match reality.
8. Generating Clean Financial Reports
After all corrections are made, the bookkeeper will produce:
Clean balance sheet — Shows accurate assets, liabilities, and equity.
Updated income statement — Reflects correct income and expenses.
Accurate cash flow statement — Tracks actual inflows and outflows of cash.
Common Issues Found in Financial Statement Cleanups
Duplicate transactions
Misapplied customer payments
Outdated unpaid vendor bills
Misclassified expenses or income
Unrecorded bank fees or interest
Old, unreconciled transactions from prior years
How Long Does a Cleanup Take?
The time frame depends on:
The number of months or years needing review.
The volume of transactions.
The complexity of the business’s operations.
The extent of errors or missing data.
Small businesses with only a few months of errors may take a few days to clean up, while multi-year cleanups can take weeks.
Q&A: Financial Statement Cleanup
Q: Can I do a cleanup myself?
A: Yes, but it requires bookkeeping knowledge and familiarity with accounting software. Most business owners prefer hiring a professional to ensure accuracy and compliance.
Q: Will a cleanup change my past tax filings?
A: If errors are found in years you’ve already filed taxes, you may need to file amended returns. A bookkeeper can coordinate with your CPA on this.
Q: How often should I review my books for accuracy?
A: Ideally, reconciliations and reviews should be done monthly to avoid large, time-consuming cleanups later.
Q: Is a cleanup the same as a catch-up?
A: Not exactly. Catch-up bookkeeping means entering transactions you haven’t recorded yet. Cleanup bookkeeping means correcting, reconciling, and reclassifying transactions already entered but done incorrectly.
Q: Will this process disrupt my day-to-day operations?
A: Usually no. Bookkeepers can work in the background, often remotely, without interfering with daily business.
Call to Action
Your financial statements are the foundation of your business decisions. Don’t let errors or outdated records hold you back.
Contact us today at Brecken Business Solutions to get a professional cleanup and keep your books accurate, organized, and ready for growth.
