Reconciled is not the same as correct. A set of books can reconcile to the penny every month and still be wrong in ways that matter, because reconciliation only proves that the transactions in the file match the transactions at the bank. It proves nothing about whether they were recorded as the right thing.
This is the single most common finding when a business brings us books that somebody else cleaned up: the reconciliation reports are clean, and the balance sheet is a work of fiction. Here are five checks you can run yourself in QuickBooks Online in about 15 minutes.
Five checks
- Open the balance sheet as at year end and read every line out loud. If there is a line you cannot explain in one sentence, the cleanup is not finished. Pay attention to anything named Ask My Accountant, Uncategorised Asset or Suspense.
- Check opening balance equity. It should be zero. A balance sitting there means a reconciliation was forced to balance rather than made to balance, which is the accounting equivalent of a band-aid over a bullet hole.
- Check undeposited funds. If there is a balance, ask what is in it. Sometimes it is legitimate timing. More often it is deposits recorded twice, which overstates both revenue and cash.
- Compare payroll expense in the profit and loss to the payroll provider’s filed quarterly reports. These should agree to the dollar. When they do not, the gap is usually employer taxes recorded in the wrong place or a pay run entered manually and then imported again.
- Run the profit and loss monthly for the full year and look across the row rather than down the column. Expenses that appear in 11 of 12 months, or a cost of goods figure that swings 40 percent with no change in revenue, point at classification done inconsistently.
What a finished cleanup comes with
Documentation. If nobody handed you a written summary of what was found, what was changed and why, you received a file rather than a cleanup. The summary is what lets your accountant see the reasoning behind an unusual treatment instead of inheriting a mystery, and it is what lets you check the work without being an accountant yourself.
We are not going to pretend this is glamorous. It is somebody reading a balance sheet carefully and refusing to let a number go unexplained. That is the entire craft, and it decides everything downstream: what your margin actually is, what your accountant charges you, and whether the numbers you plan next year from are real.
If two or three of those five checks worry you, bring the file to a 20-minute call. We look at the actual books rather than asking you to describe them.
