Cleanup guide
The Errors We Find in Messy Books
The same errors turn up in almost every cleanup. Here are twenty-one of them, grouped by where they hide, with what each one does to the numbers.
Income errors
- Transfers between your own accounts recorded as income. Overstates sales
- Loan and advance deposits recorded as income. Overstates profit and tax
- Owner money put in recorded as sales
- Sales counted twice: once on the invoice and again on the deposit
- Processor deposits recorded net, so gross sales disagree with the 1099-K
- Sales tax collected recorded as income. It is owed to the state, not earned
- Refunds to customers recorded as an expense, not as a reduction of sales
Expense errors
- Personal spending recorded as business expense
- Business costs paid personally and never recorded
- Loan payments recorded entirely as expense, when only the interest is
- Credit card payments recorded as an expense on top of the purchases themselves, which counts the spending twice
- Equipment and vehicles expensed in full with no asset record, or recorded nowhere
- Owner draws recorded as wages or contract labor
- Everything unclear put in one catch-all account
Balance sheet and payroll errors
- Accounts never reconciled, or forced to balance
- Opening balances that do not agree with the prior return
- Customers showing as owing money they paid long ago
- Loans missing altogether, or at the wrong balance
- Payroll recorded at the net amount paid, leaving out the taxes withheld and the employer’s share
- Payroll and sales tax liabilities that never clear because payments were recorded as expenses
- Inventory never counted or adjusted, so cost of goods is a guess
Nearly all of these come from books kept without a balance sheet. When there is nowhere to record a loan, an asset or owner money, it ends up in income or expenses.
What they have in common
Most of these errors cancel in part. A transfer counted as income is also counted as an expense on the other side, so profit may be close while both totals are wrong. That is why messy books can produce a tax bill that looks plausible, and still fail when a lender, a buyer or the IRS looks at the lines.
Reconciliation finds them. An account that agrees with its statement every month cannot hide a duplicate or a missing transaction for long. See how cleanup works and the glossary for the terms used here.
Frequently asked questions
What is the most common bookkeeping mistake small businesses make?
Not reconciling. Most other errors, including duplicates, missing transactions and unmatched transfers, are caught when each account is checked against its statement every month. Books that are never reconciled accumulate all of them.
Can these errors change how much tax I owe?
Yes, in both directions. Loan deposits recorded as income and unrecorded business costs raise the tax. Personal spending and loan principal recorded as expenses lower it wrongly. A cleanup shows the net effect for each year.
How do I know if my books have these problems?
Check three things: whether the bank balance in the books matches the bank, whether there is a balance sheet at all, and whether it shows your loans at the right amounts. The cleanup planner covers the rest.
Not the question you had? The full tax FAQ covers more ground, and our client reviews say what the work is actually like.
Related situations and guides
A QuickBooks file nobody trusts
Unreconciled accounts, duplicates, Undeposited Funds, bank-feed guesses. What gets repaired and in what order.
Learn moreLoans and owner money booked wrong
Loan deposits as income, repayments as expenses, draws as wages. The balance sheet items that distort profit.
Learn moreToo many bank accounts
Several accounts and cards with money moving between them. Mapping, matching transfers and reconciling each one.
Learn moreCleanup glossary
The terms you will hear during a cleanup, in plain words.
Learn moreCleanup Planner
Eight questions, then a plan: what comes first, what to gather, and which guides apply.
Part of Messy Books Help, alongside our catch-up bookkeeping service.
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