The Bookkeeping Process

Some of my clients opt to do their own books. If you have a good understanding of accounting fundamentals, a solid grasp of how the QuickBooks (QBO) software works to build financials, and a monthly workflow that you faithfully follow – you can manage your own books. Good bookkeeping isn’t just about putting the perfect category on every transaction, though that is Step 1. It’s about using a systematic process to create accurate reports that you can trust every month, and trust again at tax time.

If you have a set of books, you need to know that they are accurate and will give you financial reports that you can trust.

Bookkeeping workflow:

Below is a standard monthly workflow that was adapted from Veronica Wasek’s Monthly Bookkeeping System, who is a wonderful resource for learning about DIY bookkeeping.

Step 1: Enter your transactions
Please don’t… “Just click the ‘Add’ button”

This is where you manage your monthly financial transactions from the QuickBooks bank feed and add them to your register. Here, you’ll review and categorize expenses, match income and deposits to sales forms, enter checks to match with payments, transfer funds between business accounts, record personal expenses to the balance sheet, enter relevant notes you might need later, attach supporting documentation, and so on.

Recording transactions properly is the foundation to creating accurate financial reports and sound data for tax time.

Step 2: Reconcile your accounts
I know… everyone asks… “Do I have to?”

Yes (sorry), you do. It’s important to reconcile all of your accounts, every month. This includes bank statements, credit card, Paypal, and any other 3rd party vendors you use for your business. Monthly reconciliation is the only way to identify duplicate and missing transactions that occur when a password is changed, an account is compromised or closed, and each time your bank momentarily disconnects from QBO (which happens often without ever knowing it.) It’s also the only way to ensure that your accounts are in balance.

Step 3: Check you work
Time to review your work… “Wait, what”?

Doing the first two steps without reviewing the bookkeeping file won’t guarantee clean financials at year-end. And in fact, it most likely will guarantee inaccurate reporting with a whole lot of mistakes  (which you probably won’t want to give your accountant or use to make important business decisions.)

If you want to ensure your transactions have been properly accounted for, here are some of the things to check:

  • Confirm that there are no old items in the bank feed.
  • Confirm that all your accounts are reconciled.
  • Confirm that there are no old transactions in the reconciliation window.
  • Look for old balances in Undeposited Funds.
  • Review your Income Statement (P&L) for unusual or unexpected balances.
  • Review your Balance Sheet for unusual or unexpected balances.

Step 4: Make changes as needed
Aren’t you glad you checked? “Well, yeah…”

Once you’ve identified any errors from the steps above (and there’s almost always something to fix) you’ll want to revise the books to correct those errors. Then check your reports one last time to make sure they look right to you.

Step 5: Confirm customer and vendor data
By now you’re asking… “Are we there yet?”

Okay – yes, you can stop here if you like, but a bookkeeper probably wouldn’t. As the business owner, do you really want to?

Including small details today (when they’re fresh in your mind) can be helpful later when questions arise so you won’t need to rely on memory or spend a lot of time researching things like: 

  • Who did I collect that cash from?
  • Who did I write that check to?
  • Did I mistakenly pay from my personal account? 

Being thorough now can save you time and frustration later… and it really only takes a few minutes.

  • Review your P&L Detail report to make sure that every transaction includes a name showing who you paid, and who paid you.
  • Upload or save purchase receipts, bills, statements and other supporting documentation when available.
  • Collect W-9s early so you aren’t crunched for time in December to meet the IRS deadline.You may even consider getting a signed W-9 before you issue payment to vendors who reach the IRS threshold during the year.

Step 6: close the books
At last… Ahhhhhh!

Your final step each month is to close the books. When you do this, QBO will give you a warning message before you can make any future changes to a prior month’s data. Once you’ve taken the time to complete the bookkeeping cycle, you won’t want to accidentally change your data (and the accuracy of your reports) unless you’re sure that’s what you intend to do. Optionally, you can do this step just once at year-end.

Final note:

The workflow above is a basic start to managing a simple set of books, but it doesn’t address all the little “exceptions” that come up in every business. Those would be things like accidentally making personal purchases on the business card (or business purchases on your personal card); receiving travel reimbursements, tips or a cash gift from a client; collecting, recording and paying sales tax; deciding to sell Gift Certificates, and so on.

When I first started out I asked a lot of questions, and the one thing I heard over and over again was this: 

“Bookkeeping is ALL about the exceptions.” 

I realize today how true that is…