You may need to prepare your business books for many reasons. Organised and accurate records are beneficial for tax season, planning to merge or sell the business, undergoing an external audit, or seeking funding. Regardless of the reason for preparing business books, one thing is clear: your accurate business books can help you avoid compliance issues. That’s where bookkeepers and accountants come in. Many businesses lack resources, time, or expertise to handle bookkeeping tasks independently, so they turn to bookkeepers in Melbourne. Bookkeeping cleanup ensures that their financial records are up to date and accurate, allowing you to make informed decisions. In this blog, we’ll discuss a step-by-step guide to performing a bookkeeping cleanup.
What is a Bookkeeping Cleanup?
A bookkeeping cleanup involves reviewing, correcting, and sorting financial records of a business to ensure they are up to date and accurate. It is crucial to fix past mistakes and get everything sorted for a fresh start. For instance, a client doesn’t have a record of their business expenses for the last six months, making it difficult for them to calculate their profit and loss. Or, they may have been classifying personal expenses as business expenses, creating a mess in financial records. In both cases, a bookkeeping cleanup is crucial to identify errors and get the books back on track. This process might include adjusting or posting journal entries, miscategorised financial transactions, creating a bank reconciliation statement, and ensuring compliance with tax regulations. By the end of the cleanup, business books will be balanced, accurate, and ready for any upcoming audits, business decisions, or tax filings.
What is Involved in Preparing Books Ahead of An ATO Audit?
Now you know what bookkeeping cleanup is, let’s go through the process for performing a bookkeeping cleanup. The process will reduce errors, save time, and ensure the best results.
- Prepare all financial documents
First of all, you need to collect all the required financial records related to your business. Basically, this includes bills and invoices, bank and credit card statements, payroll reports, and other relevant financial data. Bookkeepers ensure that all accounts and financial activity are up-to-date.
- Review and classify transactions
Another important thing is to review and categorise all financial transactions carefully. Proper categorisation ensures that your financial statements are up to date and accurate, providing insights into your business performance. Bookkeepers also use accounting software such as Xero, QuickBooks, or MYOB to review your financial transactions.
- Identify discrepancies or missing financial transactions
Bookkeepers often find discrepancies or missing financial transactions. These issues can arise from incomplete financial records, forgotten entries, miscommunications about business expenses, or duplicate records. Bookkeepers find these discrepancies by comparing financial transactions against bank statements, the accounting system, and receipts. Look for duplicate data, mismatches in amounts, or missing financial transactions. Also, double-check with other documents like receipts and invoices. After identifying discrepancies, bookkeepers will ensure to resolve those errors.
- Review accounts payable and receivable
Accounts payable and accounts receivable directly impact your company’s cash flow and financial health. Hence, it is crucial to review them to ensure they are up to date and accurate. For accounts receivable, verify all outstanding invoices and follow up on past-due ones. For accounts receivable, bookkeepers will check that all unpaid vendor bills are accurate. Address and correct duplicate vendor overpayments or invoices, ensuring expenses are not inflated. Payments must be prioritised to avoid late fees and maintain strong vendor relationships.
- Ensure payroll records are up to date and accurate
Payroll mistakes can result in compliance issues, tax penalties, and unhappy employees, making reviewing payroll records during a bookkeeping cleanup necessary. Bookkeepers examine payroll summaries and timesheets to check if it has accurate records. After that, the payroll expenses in the accounting system are compared with bank statements, ensuring that tax withholding and benefit payments align. Each record must be accurate, which is often used by accountants at the time of tax return lodgment. To ensure accurate tax return lodgment, you can also speak to small business accountants Melbourne.
Conclusion
Preparing your books before an ATO audit helps ensure your financial records are accurate, complete, and compliant. A proper bookkeeping cleanup reduces errors, saves time, and lowers the risk of penalties. With reliable bookkeeping services, you can face an audit with confidence and focus on running your business smoothly.