The Ultimate January Checklist for Bookkeepers

The Ultimate January Checklist for Bookkeepers
Written by Publishing Team

January can be a stressful month for account holders. In addition to our normal workload, we have additional payroll deadlines, it’s 1099, we’re trying to close the books so our clients’ accountants can work their magic and many of our clients are asking for strategic meetings to help them start the new year on the right foot.

We can easily get caught up in the frantic busyness of the month and start February feeling like we’ve barely made it, let alone done the best work possible on our clients’ books. This is where the checklist below comes in handy.

The following 10 items may not be on your radar in January, but completing them will raise your company’s reputation as a top-tier bookkeeping services provider. As a bonus, they only add a few minutes to your annual closes.

1. Check all bank accounts and credit cards for unreconciled transactions. With more companies opting for electronic payments, unreconciled expenses are becoming less common. Unless your customer writes a large number of checks, unreconciled expenses in their bank accounts should send a red flag in the year-end review process, as they can indicate duplicate — and thus exaggerated — expenses.

Even if your customer writes a fair number of checks, you should still check any unreconciled transactions. If the payment is truly due, consider asking your customer to contact the payee to determine if there is a reason they should not submit checks for payment that are more than 60 days old.

Unreconciled deposits should always be a red flag, as should transactions in a credit card account. The exception is if the transaction occurred close to the closing date of the most recent statement.

2. Check personal expenses on books. Whether your customer has grabbed the wrong credit card or intentionally ran personal expenses through the company for a tax deduction, keeping any personal expenses on the books before sending them to the accountant for taxes is critical. You often find these expenses buried in the meal, entertainment, and office expense categories. You can also pull an expense report from the vendor to help you find personal expenses. For example, there are quite a few business reasons why a toy store should appear in marketing agent books.

Sometimes, though, your customer will have a legitimate business reason to make a non-tax-deductible purchase. Many accountants consider this to be a personal expense and send it to the account for withdrawals/distributions. Although this is true for tax purposes, it can hinder a customer’s ability to use their financial statements to run their business throughout the year.

When you come across an expense that may not be tax deductible, consider moving it to an expense account called a CPA Review. You can set up sub-accounts under the main CPA audit account to make this section of the P&L more useful to your clients and their accountant.

3. Find business expenses that should be on the books, but are not. There are a number of reasons why the expense that should be on the books is not. One of the most common reasons is that the company was low on cash, so the business owner used their personal savings — or a personal credit card — to make a payment, and then forgot to share that information with you.

To find business expenses that should be on the books but aren’t, run a P&L to compare the year just completed to the previous year, and make sure the totals in each category make sense. If they don’t, run a monthly profit and loss and make sure that all recurring expenses — rent, utilities, insurance, etc. — appear for each month of the year.

Pay attention to the income as you complete this step as well. If income has increased – or decreased – more than you think it should have given the trends you’ve seen in a client’s business over the past year, take a closer look. Income could have been booked twice or misclassified.

4. Reconciliation of balance sheet accounts. Don’t end your reconciliation efforts on bank and credit card accounts. Reconcile all accounts on the balance sheet, paying particular attention to the unclaimed funds account, loan accounts, payroll liabilities and accounts payable and accounts receivable. If you use QuickBooks, you can settle each account on the balance sheet just as you would a checking account or a credit card account.

This is also a great opportunity to check for discontinued assets that should be removed from the books. And if your client owns several companies, be sure to check intercompany loan or intercompany transfer accounts on each company’s balance sheets and link these accounts.

5. Check Retained Earnings. To ensure that there are no transactions recorded in a prior year, make sure that the retained earnings on your balance sheet as of 12/31 of the previous year match the retained earnings on the balance sheet filed with the previous year’s tax return.

Here is an example. Let’s say a customer’s balance sheet on December 31, 2021 shows retained earnings of $37,590. Compare this amount to the Schedule L amount of the client’s tax return for 2020. If the Schedule L shows an amount of retained earnings of $37,590 as well, you are good to go. If it shows any other amount, you’ll need to do some research to find out what caused the change. Depending on the size and nature of the change, most tax accountants will ask you to change the date of the transaction so that it appears in the year just completed (in this case, 2021). Occasionally, though, the accountant will decide to amend the prior year (2020) tax return.

What if your client is on Schedule C or you don’t have access to Schedule L of the client’s tax return? In this case, pull the balance sheet that you provided to your client for the previous year (in this example, the date on the balance sheet would be 12/31/2020). Add retained earnings, net income, and any withdrawals or distributions on the balance sheet. Now, compare that total with the retained earnings on the balance sheet as of 12/31 of the year that just ended, or, in this case, 12/31/2021. The numbers must match.

You might argue that this is all superfluous if you close the books at the end of each year. Even if you lock the books and set a password to lock, I still recommend completing this exercise, just in case.

6. Clearing suspended accounts. Reclassify the transactions in any outstanding accounts to a standard account in the chart of accounts. Suspended accounts include unclassified income, unclassified expenses, unclassified assets, “ask the accountant,” “ask my customer,” and any other accounts where transactions have been held up so you can get instructions on how to properly classify them.

I also like to keep the Miscellaneous Income and Miscellaneous Expense accounts at or near $0. The only transactions that should be in these accounts are those that don’t fit anywhere else and are too rare to include their own category in the chart of accounts.

7. Check the consistency of the expense classification. From a tax perspective, it doesn’t make much difference if the expenses are categorized as one month’s accruals and contributions and another month’s office expenses. In order for the financial statements you provide to your clients to be meaningful from a management point of view, though, you want to make sure you continually categorize expenses from month to month. I’m creating a custom “List of Transactions by Vendor” report that shows account breakdowns to quickly check expense classification consistency.

8. Ensure that all expenses include the name of the payee. You want to complete this before the 1099s are released. If you are using QuickBooks, the best way to ensure that all expenses include the name of the payee is to run a Summary of Expenses by Vendor report for the year just completed. Scroll to the end of the report and search for “Unset”. Navigating this line will show you all transactions that do not include a payee name.

If there are a lot of transactions without a payee name, I recommend exporting expenses by vendor summary report to Excel, sorting in the account column, and then using the Reclassify Transactions feature in Accountant Tools to map vendor names to transactions on the account on a per-account basis.

9. Reconciling the returns of the quarterly payroll, summary annual reports, and ledgers. Before you issue W-2s to employees of your clients and file Form 940 and Q4 Form 941, make sure the totals on your W-3 or other summary reports match the total of the payroll reports for four quarters. Then compare total wages, payroll tax expenses, benefits, and other payroll items to profit and loss for the year. Also look at the payroll liabilities on the balance sheet to make sure the balances owed match any payments due for the fourth quarter.

10. Look for opportunities to serve your customers better. This last element will serve your company as well as the business of your clients. Do client profits and losses show a significant net income, with little cash in the bank? If so, they may benefit from cash management counseling. Did you find a lot of errors during the year-end review? Then maybe the customer or their employees need some training on how to use QuickBooks properly, or maybe they can take advantage of some automation to help reduce errors.

Yes, this is all “extra work”, and it comes in a month when the time is already above its price. However, the results are a cleaner set of more meaningful financial statements for your customers and suggestions you can use to help them move forward with their business in the new year. This takes you from just another accountant to a top-tier bookkeeping services provider.

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