Ignore QuickBooks Spring Cleaning at Your Peril

By: Jeff Heybruck

When was the last time you looked under the cushions in QuickBooks? You’re not alone. The majority (over 60%) of QuickBooks users are small businesses, many of which don’t have dedicated resources to help with QuickBooks management. Over time, things get messy and the business owner loses confidence in the QuickBooks numbers.

If you’re ready to get QuickBooks back on track, Lucrum’s accountants and CFOs share a 9-step process to clean up a QuickBooks company file. Please note that these steps are generalized. If you need help with a specific QuickBooks instance, schedule an appointment with one of our accountants.

1. Backup The Company File:

This is the most critical first step. Before making any changes, always back up the QuickBooks data. This will allow the file to be restored if anything goes wrong during the clean up process. A manual backup will provide the most control, allowing the user to select when and where to back up the company file. Doing a rebuild occasionally is a good idea as well; the frequency is usually determined by the number of transactions posted and how many users are accessing the file at one time. More transactions & more users = more opportunity for corrupted files or entries.

2. Review The Chart of Accounts:

The Chart of Accounts (COA) is the backbone of a QuickBooks file. Review it carefully, consolidating duplicate accounts and deleting any unused or unnecessary accounts. Ensure the account names are clear and descriptive. Take the time to ensure it is structured thoughtfully. Use Account Numbers to organize related accounts so that they fall together on financial statements. Implement a standard COA numbering system (if not already in place) to help the entire team understand what type of Account is being represented. Then, verify that all Accounts are correctly categorized (e.g. income, expenses, assets, liabilities).

A well-organized COA simplifies data entry, provides clear insights into financial health and streamlines reporting.

3. Clean Up Customer and Vendor Lists:

Remove or inactivate Customers or Vendors the company no longer does business with. Delete or merge duplicate Customers and Vendors. Then, ensure the information for active Customers and Vendors is up-to-date and accurate. This includes contact information, addresses and payment terms. Also take a moment to review and confirm that the setup of Customers and Vendors inside QuickBooks matches the business structure. Let the reporting needs of the business guide the configuration of Vendors and Customers inside QuickBooks.

4. Reconcile Accounts:

Reconciling bank statements, credit card statements and other key financial documents with QuickBooks numbers establishes a solid foundation of accurate data. Discrepancies found during this process can point to areas that need special attention, such as duplicate transactions, miscategorized expenses or outdated account information. This step may also involve troubleshooting connections between QuickBooks and bank or credit card accounts.

Consider using QuickBooks’ reconciliation feature to help match statements with QuickBooks records. This step might require a one-time reconciliation back to a specific date to get QuickBooks and the accounts to a zero difference. Then, implement processes to regularly reconcile accounts. Monthly reconciliation is ideal; in addition to ensuring that errors and discrepancies are caught promptly, it aligns with the typical availability of bank and credit card statements.

Posting an unreconciled difference to “Reconciliation Discrepancies” is NOT reconciling the account. Anyone who finishes a reconciliation in this manner is wasting their time. If a particular account reconciled was to zero last month and won’t tie this month, research exactly what transactions are causing it to be out of balance. Everything on the bank statement should be recorded in QuickBooks and anything that was entered in QuickBooks that is not going to clear the bank should be cleaned up. Things like duplicate entries, stale transactions, or mistake entries should be reversed or deleted.

5. Review and Correct Transactions:

Look for any errors or inconsistencies in transactions. This includes duplicate entries, which can inflate expenses or income. Also look for incorrect classifications. For example, expenditures for marketing materials are generally not classified as Office Supplies , rather they would go to Marketing Expense. We also encourage clients to code transactions where they were budgeted. For example, should a marketing consultant (SEO or Web designer) be coded to Marketing or Professional Fees? The answer is it depends. Where have they been coded in the past and where was the expense allocated when preparing the budget? If inconsistently coded with prior years or the budget, it’s going to show some large variances year-over-year or when compared to budget. Then try to identify missing information such as dates, descriptions, or uncategorized transactions. Don’t forget to look for things as simple as a typographical error (e.g. an extra 0, but this should have been caught by the bank rec process done in Step 4). Make any necessary corrections or updates.

Tip: Run a report like Transaction Detail by Account to identify potential errors and inconsistencies. Ensure that each transaction is assigned to the correct income or expense Account.

6. Manage Inventory (If Applicable):

If the business tracks inventory, review the inventory list and make any necessary adjustments. Identify obsolete items, check for duplicate entries of the same item, and verify that item information is accurate and up to date (e.g. cost, sales price, inventory account, item name and description).

Tip: The best way to do this is to fix the actual transactions by correcting the invoice, sales receipt or bill where the inventory was purchased. Use the “Inventory Adjustment” feature in QuickBooks to update the quantities to match physical accounts for things like damaged product or shrinkage.

Clean inventory data ensures QuickBooks accurately reflects actual stock levels to prevent overselling, stockouts, unnecessary reorders and costly errors in fulfilling orders. It’s also essential for calculating Cost of Goods Sold (COGS) since this figure directly impacts profitability. Clean inventory data ensures accurate reports on inventory valuation, sales trends, and stock levels, which are all crucial for informed decision making. It also ensures the account balance shown on the balance sheet is accurate and not over/under stated.

7. Run Reports and Analyze Data:

Generate key financial reports, such as Profit & Loss and Balance Sheet reports, to review financial data. Analyze the reports to identify any areas of concern or opportunities for improvement. Cash Flow Statements are another great place to analyze and identify any inconsistencies in cash flow patterns. Other helpful reports include the General Ledger (for in-depth analysis), and other detail reports to show financial information in greater detail like deposits by customer if the business requires a deposit up front before starting work or retainage by job if a contractor has to deduct retainage from their invoices. Heads up, these last two reports are not standard, pre-packaged QuickBooks reports. They are custom made detail reports created by opening the transaction detail, organizing the report by customizing it to show the data desired, and saving it to Memorized Reports.

8. Consider a QuickBooks Clean Up Service:

Feeling overwhelmed or unsure about where to start? Consider hiring QuickBooks professionals, like Lucrum Consulting, to perform a tune-up. We can help identify and resolve complex issues, ensuring the QuickBooks file is optimized for peak performance and insight. If the existing team got QuickBooks in the current situation, it’s important to ask whether the business has the in-house training and expertise needed to get it back in shape.

9. Establish Regular Maintenance Practices:

Cleaning up a QuickBooks file is not a one-time event. Establish regular maintenance practices, such as monthly reconciliations and quarterly reviews, to keep data clean and accurate.

Cleaning up the books is a great first step to Confidence in the Numbers. If you need help executing these steps for a business book a no-commitment consultation with our accountants.