Fixing a QuickBooks Mess
(St Catharines, ON Canada)
What the heck!
Why don't these QuickBooks records match the financial statements?
How do I correctly fix a badly managed set of QuickBooks that hasn't been properly managed since 2010.
Specifically, how do I get the QuickBooks records/data and the financial year end statements to match?
Whew, now that's a big question ... which I'll answer with it depends.
It depends on what is causing the differences. Were the books kept by the owner then given to an accountant to prepare the year-end statements?
If yes, then perhaps the differences are simply that the year-end adjusting entries prepared by the accountant were never entered into QuickBooks.
Were the bank account(s) and credit card(s) reconciled? If no, then perhaps what needs to be done first are account reconciliations.
If the problems with the record keeping are because the actual bookkeeping itself stinks, then sometimes it is faster and cheaper to just start fresh. The question then becomes, do you go back and redo the past years to have clean records, or do you just start fresh with the current year.
Personally, if an accountant prepared the year-end financials, I'd wouldn't worry about past years and just start fresh. If an accountant didn't prepare the financials, then I'd redo past years. If you think the accountant may have understated income or overstated expenses due to the less than accurate set of books, then I'd redo the past years and notify the accountant as tax adjustments for prior years may be necessary.
Of course, this should all be discussed with the owner of the business first. Under no circumstances would you just go ahead on your own. You need to discuss the problems with the owner and come up with a solution.
How do you determine if the bookkeeping stinks? Well here are few clues:
1. The chart of accounts is/was not properly set up for the correct business structure.
2. The chart of accounts has too many accounts listed for the size of the business, has duplicate/separate accounts for similar charges, and/or has expenses accounts by name of provider; for example accounts are labelled Telus or Bell instead of Telephone.
3. The balance in the Undeposited Funds account has been growing, income looks high for the size of business, and accounts receivable has a huge amount of 'Over 90 Days' invoices.
4. Accounts Receivable and Payables have unapplied payments.
5. Accounts Payable has a huge number of 'Over 90 Days' bills; when you look at the expenses, they seem unreasonable for the size of the business.
6. Credit card details were not entered individually but lump sum.
7. Sales tax payments were not run through the Sales Tax Module or sales tax codes were not setup properly.
8. If there is payroll, the Payroll Module was not used to pay the source deductions but run through 'Write Cheques' instead.
9. Inventory balances are out of whack ... too high or maybe even negative.
What small business owners sometimes don't realize when they do their own books instead of hiring a bookkeeper, is that it usually takes longer to go in and figure out what they did, then do correcting entries and (re)reconcile accounts than it does to just reenter the data correctly and reconcile accounts.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.
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