Bank and credit card reconciliations

Reconciliation is the process of matching the transactions in QuickBooks to the transactions on your actual bank and credit card statements. It confirms that nothing is missing, nothing is duplicated, and the balances agree.

Before tax season, every bank account and credit card account connected to the business should be reconciled through December 31 of the tax year. If any accounts have not been reconciled — or have not been reconciled since the prior tax season — the books are not ready.

What unreconciled accounts mean

An unreconciled account means the CPA cannot confirm that the transactions in QuickBooks match what actually happened. There may be missing transactions, duplicate entries, or incorrect amounts. Until the account is reconciled, the financial statements cannot be trusted.

Uncategorized transactions

When transactions are imported from a bank feed, QuickBooks may not be able to categorize them automatically. These transactions sit in an "uncategorized" or "ask my accountant" bucket until someone reviews and categorizes them.

A large number of uncategorized transactions at year-end means the expense picture is incomplete. Deductions may be missed. Income may be miscategorized. The CPA will need to go through each one — which takes time.

Ideally, transactions should be categorized as they come in — monthly at minimum. Arriving at tax season with a year's worth of uncategorized transactions is one of the most common causes of delayed returns and higher preparation fees.

Owner transactions

Owner draws, personal expenses paid from the business account, and business expenses paid from personal accounts all need to be clearly identified and properly recorded.

• Owner draws should be recorded as equity draws, not as business expenses.
• Personal expenses paid from the business account should be identified and reclassified — either as owner draws or removed from the expense categories.
• Business expenses paid from personal accounts should be entered into QuickBooks so they are captured as deductions.

Mixed personal and business transactions are one of the most common bookkeeping problems — and one of the most time-consuming to sort out at tax time.

Loan balances

If the business has loans — bank loans, SBA loans, equipment financing, or loans from the owner — the balances in QuickBooks should match the actual outstanding balances as of year-end. Loan accounts that have not been updated may show incorrect balances, which affects both the balance sheet and the interest expense deduction.

Year-end loan statements from lenders are the source documents for reconciling loan balances.

Duplicate entries

Duplicate transactions are a common QuickBooks problem, particularly when bank feeds are connected and transactions are also entered manually. A payment that appears twice inflates expenses and understates income. Duplicates are not always obvious — they may appear on different dates or with slightly different descriptions.

Running a reconciliation catches most duplicates, but a review of large or unusual transactions is also useful.

Financial reports that should make sense

Before sending a QuickBooks file to a CPA, run the following reports and review them for obvious problems:

• Profit and Loss (January 1 – December 31): Does total income look right? Are expense categories reasonable? Are there large amounts in "uncategorized" or "ask my accountant"?
• Balance Sheet (as of December 31): Do bank account balances match actual year-end statements? Are there negative balances that should not be negative? Does the equity section make sense?
• Accounts Receivable Aging: Are there old outstanding invoices that have already been collected but not marked as paid?
• Accounts Payable Aging: Are there bills that have been paid but not marked as paid in QuickBooks?

What to do if the file is not ready

If your QuickBooks file has significant issues — unreconciled accounts, large numbers of uncategorized transactions, mixed personal and business expenses — the most efficient approach is to address them before your tax appointment, not during it.

A bookkeeper or CPA can help you assess the scope of the cleanup needed and get the file into a state where tax preparation can proceed efficiently. The earlier this happens, the less it costs and the less likely you are to need a filing extension.