Garbage Bag Filing System

by Paul
(Dartmouth)

Client brings in loads of garbage bags to do


Hello - I just accepted this new client who hasn't done
any of their bookkeeping for 10 years, is really behind and needs to get caught up to date.

It was more than I expected when they brought in a load
of garbage bags.

I took a look at one of the bags and it seems that everything is mixed up by
years and just dumped all in.

I am completely lost in where to start or even how to sort out the records to do the bookkeeping work so that at least there is some progress.

What do you do when your client brings in their records in a truck load of garbage bags for you to do their bookkeeping for them?

Hi Paul,
Well first off you've got a great story to tell for years to come ... and secondly, you know what your client feels about bookkeeping and filing systems.

This filing system is another version of the shoebox system. I'm not a fan of either.

Before you do anything, you will require a large deposit and explain you will be progress billing. At each step when you feel it is appropriate, don't do any more work until you receive your next installment.

I would also explain that they could reduce their bill if they do some sorting of the paperwork.

Let's assume you've done all that ... where do you start.

I think this is going to take a few passes ... which means the rule of try to only touch a piece of paper once won't apply.

For the first pass, I would start sorting by year. The second pass, I would pick the most current year and sort it according to schedule T2125. I would work back in years doing the most recent first as it is probably more complete than prior years.

Next, roll up your sleeves and start entering your data. I would enter all income first, then move to expenses. If you are using a program like QuickBooks, it lets you move between years every easily if need be.

Once I have a year entered, I would do reconciliations. Depending on the number of transactions, I would do bulk bank and credit card reconciliations ... you would judge how many months you could do this way. If it is a large volume, I'd stick with monthly recs.

Any items on the bank or credit card statement that don't have proper source documentation, I would book to my account called "No Receipt No Deduction".

At the end of each year, this would get cleared to the Owner's Draw if the paperwork doesn't turn up ... but I wouldn't do this until I had caught up all years. This give you the flexibility to match up stuff as you go along. (Normally once a period is closed, you would journal the entry ... but when doing backwork, everything is still open so feel free to edit (and move/re- sort the paper documentation accordingly.

You will have to watch for bank deposits and ensure they are income and not contributions or loans.

Does he need to do all ten years? Has CRA given him a notice? The biggest mistakes are those of non-compliance ... so be vigilant so you don't understate sales or overstate expenses.

My final piece of advice ... try not to feel sorry for the client ... they created this mess and shirked their responsibilities. Help them out of it ... but make sure you get paid for your work.

Also realize that the client will probably have lost a lot of deductions due to their inattention to paperwork.

If they are still in business, help them set up a filing system that works for them ... something as simple as an envelope or box for each month would even be helpful. Clearly filing isn't one of their strong suits ... so keep it simple.

Good luck Paul!




P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

I apologize to my readers ... but while converting this submission to upgraded software, I lost all comments associated with this posting. The post was originally submitted in September 2011. Lake