Documents and Information Needed to Have Ready for a Cleanup

Part One

You Can't Start Without These

1. Bank and Credit Card Statements

This is the most important item you will need for a cleanup. Generally, businesses use their business bank accounts and credit cards for transactions and receiving income, so you will definitely need these if they have them. Whether the cleanup is done in QuickBooks or on paper, you need the statements to start at all, and they're necessary to reconcile the books. Get every account for every month in the cleanup period.

However, in many cases clients will have mixed business income and expenses with their personal accounts over periods of time, so it's important to ask whether that applies. If it does, you may need to request their personal bank statements for those months too.

2. The Last Filed Tax Return and Any Prior Books

The cleanup has to start from somewhere. The last filed return, or the last closed set of books, gives you opening balances, so your work ties back to what was already reported. If the client has an existing QuickBooks file, get access to it before anything else.

Part Two

Fill In What the Bank Statement Can't Show

A bank statement tells you how much money moved and when. For three of the most common transactions, it doesn't tell you what the money was. Here's what one line on a statement can be hiding.

One Line on the Statement, Three Different Stories

What the bank shows

LENDER PAYMENT$1,850

Interest (expense)

$412

Principal (balance)

$1,438

Comes from the loan payment history.

What the bank shows

PAYROLL DEBIT$8,400

Net pay to staff

$6,100

Taxes withheld

$1,690

Employer taxes

$610

Comes from the payroll register.

What the bank shows

SQUARE DEPOSIT$2,910

Gross sales

$3,050

Less fees

($90)

Less refunds

($50)

Comes from the processor's reports.

3. Loan Payment Histories

Many businesses take out loans and pay them down over time. Unfortunately, a bank statement gives no breakdown of a loan payment. It shows one number, not how much went to interest, which is an expense, and how much went to principal, which reduces the balance. So it's best to request payment histories from the lender, plus the original loan documents. Payment histories will usually show what was paid in interest, what was paid in principal, and the beginning and ending balances.

4. Payroll Reports

Especially with corporations, it's common to see a handful of payroll expenses a month. But just like with loans, bank statements offer no breakdown of what was paid and who was paid. As a result, it's important to request payroll documents that show the details: payroll registers from the payroll provider, the quarterly payroll tax returns (Form 941), and the year end wage statements.

5. Payment Processor Reports

Square, Stripe, PayPal and Shopify deposit sales after taking out fees and refunds, often in batches. If you book only what hit the bank, you'll understate income and miss the fees completely. The processor's reports show gross sales, fees and refunds separately.

6. Receipts and Invoices

Ask whether the client has kept receipts and invoices for their purchases and sales. Certain purchases should have receipts to back up the deduction if the IRS ever asks, such as charitable contributions, meals, travel, gifts and vehicle costs. Start with those.

Part Three

Questions Worth Asking Up Front

7. What Are Your Recurring Transactions?

Generally, a number of transactions happen on a regular basis. So it's good to ask at the start what these frequent purchases are for, or what the client usually buys from their regular vendors. Ten minutes on this saves hours of guessing later.

8. Did You Buy Any Assets?

In some cases, clients may not realize they bought something that should be treated as an asset, or they may just fail to keep track of it. Ask if they know of any purchases like vehicles, technology and equipment, or even building improvements. If there are assets, get the cost, the purchase date and the date each one was placed in service, because depreciation starts on that date. Any single item over $2,500 deserves a second look. That's generally where the IRS de minimis safe harbor stops for businesses without audited financials.

9. Did Any Personal Purchases Go Through the Business Accounts?

Most people may not know, let alone remember, whether they made personal purchases on business accounts, but it doesn't hurt to ask if they're aware of any. That's especially true because plenty of businesses make personal purchases on business accounts out of convenience. Book these as owner draws, not business expenses.

10. How Does the Business Actually Work?

You want to learn as much as you can about a client so you can tailor your services to them and build a good relationship, especially in bookkeeping. Find out what they sell, who they buy from, how they get paid, and whether they use employees or contractors. A deep understanding of everything your client deals with is critical for categorizing transactions correctly and efficiently.