Bank Reconciliation Made Simple
From Tax Guide.
Tax Guide · Arab, Alabama
Behind on Bookkeeping? How to Catch Up and Clean Up Messy Books
Behind on bookkeeping is common and fixable. Learn how to gather records, catch up your books in order, and get organized before tax time.
The short answer
What should I do if I am behind on my bookkeeping?
Start by gathering what you already have, then work forward one month at a time until your books are current.
Falling behind is one of the most common problems small business owners face. Running the business comes first, and record keeping is easy to put off until a busy season ends. Then a season turns into a year.
The good news is that the information almost always exists somewhere. Bank statements, card statements, invoices, deposit slips and email receipts can rebuild most of what happened. A cleanup is mostly patient sorting, not detective work.
The important step is to begin. Books that are a few months behind are often quicker to catch up, and books that are years behind can usually still be rebuilt in an orderly way.
Getting started
What records do I need to catch up my books?
You need proof of money coming in and money going out for the period you are catching up.
Bank and credit card statements are the backbone, because they list every transaction the bank saw. Request copies from the bank if you have lost any; most institutions can provide past statements.
Then add the paperwork that explains those transactions.
- Bank statements for every business account, including savings.
- Credit card statements used for the business.
- Sales records, invoices and deposit slips.
- Receipts and bills for expenses, or the closest substitute you can find.
- Payroll reports and tax deposit records, if you have employees.
- Loan statements, lease agreements and asset purchase records.
- Prior tax returns, which show how items were handled before.
Step by step
How do I clean up messy books?
You clean up messy books by working in date order, sorting each transaction into a category, and checking every month against the bank.
Do not try to fix everything at once. Choose the oldest month that needs work and finish it completely before moving to the next. That way, each month starts from a balance you have already checked.
A simple order keeps the job from feeling endless.
- Set up one place for the books, whether software or a spreadsheet, and use it consistently.
- Enter the opening balance for each account from a statement you trust.
- Record each transaction for the month and assign a category, such as sales, supplies, rent or insurance.
- Reconcile the account to the bank statement before moving on.
- Set aside anything you cannot identify in a list of questions, and come back to it.
- Repeat until you reach the present month.
When things are missing
What if I lost receipts or cannot explain a transaction?
Missing receipts are a problem you can usually work around, though the workaround takes some effort.
Start with the bank or card record, which shows the date, amount and payee. Vendors often keep copies of invoices and can send them again. Online accounts, emails and calendars can fill in the purpose of a payment.
For items you truly cannot document, write a short note explaining what the payment was for while you still remember. Records that are reasonable and consistent carry more weight than a gap. Rules about what proof is needed vary by type of expense, so we confirm what applies.
Going forward, a few habits prevent a repeat. Keep business and personal spending in separate accounts, and follow the tips in our guide to receipts and expense tracking.
Watch the deadlines
How does being behind on books affect my taxes?
Being behind on your books does not change a tax deadline, and it can make a return harder to prepare correctly.
The IRS and the Alabama Department of Revenue expect returns to be filed on time whether or not your bookkeeping is finished. If books are incomplete, income may be missed or deductions may be left out, and either mistake costs something.
If you also have returns you have not filed, that deserves its own attention. Our guide to unfiled tax returns explains what to do next. Payroll tax reports and deposits also run on their own schedules, so if you have employees, do not let those wait on the cleanup.
Keeping current
How do I stay caught up after a cleanup?
You stay caught up by making bookkeeping a small, regular task instead of a yearly project.
Pick a fixed time, weekly or monthly, and treat it like an appointment. Record the transactions, file the receipts and glance at your reports. The goal is a routine you will actually keep, not a perfect system you abandon in March.
Some owners prefer to hand the routine to someone else so they can focus on customers. Either way, a monthly check against the bank keeps errors small, and it helps to know what bookkeeping involves so you can review the work.
- Set a recurring reminder on your calendar.
- Record income and expenses as they happen, not in bulk.
- Reconcile every account when the statement arrives.
- Keep records in one place and back them up.
How we can help
Want help getting your books back on track?
Melton Tax Services can help through our payroll and bookkeeping service.
We can sort through the records with you, catch the books up in order, and set up a routine that keeps them current. Bring in what you have, even if it is a shoebox, and we will work from there.
We serve Arab and the surrounding area. Call our office at 256-586-4635 or use the contact page. Please do not send account numbers or Social Security numbers through the website.
Answers
Questions about bookkeeping cleanup
How far back should I catch up my books?
Start with the most recent tax year that has not been filed, then work forward. Older periods matter if returns were never filed or if you need to correct something. We can help you decide how far back is worthwhile.
Is it embarrassing to bring in disorganized records?
Not at all. Many people arrive with boxes, folders or a phone full of photos, and the goal is simply to help sort it out.
Can I do a cleanup myself?
Yes, if the volume is small and you have the time. Bank reconciliation and consistent categories are the key steps. If the job keeps stalling or the numbers will not agree, getting help is usually faster.
Will catching up my books help with a loan or a tax notice?
Accurate, current books support both. Lenders like to see clear financial statements, and answering a notice is easier when your records are in order.
How do I stay caught up once the cleanup is done?
Set a regular time each week or month to record transactions and reconcile. A short routine that you actually keep is better than a big effort that fades.
Should I fix old mistakes or start fresh?
Usually it is better to correct the past than to start over, because the earlier records may affect returns already filed. We can help you decide how to handle older periods.
What if I am behind on payroll records too?
Payroll reports and deposits run on their own schedules, so bring those up first. Late payroll reports and deposits can carry penalties, and we can look at where you stand.
Read next
Related reading
How to Track Business Expenses and Receipts
From Tax Guide.
Unfiled Tax Returns: What To Do If You Have Not Filed
From Tax Guide.
Payroll and Bookkeeping
A service Melton Tax Services provides.
Melton Tax Services
Questions about your taxes or your business?
Our team in Arab is just a phone call away, and we are glad to talk it through with you.