What Makes Up a Clean Set of Books

A clean set of books means that everything is caught up. But what is everything?  We use this to mean all accounts are reconciled, uncategorized transactions are figured out, all bills and invoices are up to date, tax forms are filed, and the journal entries are done.  The most common thing I see when I take over somebody else’s bookkeeping is that the journal entries aren’t complete. There are a lot of small things in the “journal entries complete” section that people miss, even qualified bookkeepers.  

Journal entries are essentially where you’re moving money around that did not happen at the bank level. If you’re processing credit cards for payment, some merchant processors take out a fee for each transaction so that the amount hitting your bank account is less than the amount you were paid. The net amount is what hits your bank account. If you’re counting the net amount as sales, you’re missing that the credit card company actually took some of the money before you received it. In an audit, that would be discovered and the money they took out as fees is actually taxable to you, so that has to be added back in, which is done in a journal entry. There’s a number of journal entries that have to be done and a lot of times they’re missing.

S.O.P. stands for “Standard Operating Procedure.” Many business owners don’t spend any time developing their accounting procedures, they just start going and keep track of receipts and bank accounts. They neglect to spend the time to think through the process by which the accounting department needs to run. When I take over for a new client, one of the things I’m looking at is what are the procedures to correct accounting practices accurately. It’s not always obvious so that’s one of the things that we want to figure out as soon as we get started. This is how we figure out what a clean set of books should entail.