You started your venture for growth, not to keep track of numbers. You’ve been scaling your business and keeping your books organized wasn’t at the top of your to-do list. This is where backlog & clean up accounting comes rescue
Once the business starts growing the importance of timely numbers starts increasing. Soon it’s realized that in addition to compliance requirements, timely numbers are required to make business decisions, pitching to investors for raising capital, bank loan, or financial relief.
Many entrepreneurs also take a plunge in maintaining accounting on their own & very soon realize that it’s not that simple. Though accounting apps do their best in selling that running your own business accounts on the cloud is on tip of your hand, anyone can do accounting using our state-of-the-art app.
But pretty soon it’s clear that the nuances do make this task more daunting than you thought. Which nominal code do you use exactly? Is it an expense or a liability? How do I know if I have somehow doubled up by raising an invoice and then marking a payment? Why do I have these extra transactions I don’t remember putting into the accounting software?
Summary
In this article, we give you:
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- Understanding what bookkeeping backlog & clean up is
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- Why do we have a backlog
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- Who all need backlog clean-up accounting
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- Software & Documents needed backlog accounting
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- Process of clean up & Batch processing tips for a high volume of transactions
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- Why GATP Solutions
What is bookkeeping backlog cleanup?
Bookkeeping means keeping a regular record of a company’s financial transactions. The indispensability of bookkeeping is not unknown to any business owner.
Backlog and clean up accounting is the process of bringing financial records up to date by recording all past transactions that still need to be entered into the accounting system.. This can occur for various reasons, such as staffing shortages, lack of time, or poor bookkeeping practices.
Clean-up accounting involves going through your financial records with a fine-toothed comb and identifying any errors, duplicate entries, or other mistakes that need to be fixed. By taking the time to clean up your financial records, you’ll have a more accurate picture of your business’s financial health.
For example, let’s say that you run a small retail business, and you’ve fallen behind on your bookkeeping. You decide to do some backlog accounting and realize that you’ve forgotten to record some sales transactions from the previous month.
Once you’ve caught up on your bookkeeping, you notice that your sales figures look off. By doing some clean-up accounting, you discover that you accidentally recorded some sales transactions twice, which was causing the discrepancy in your numbers. By correcting this mistake, you now have a more accurate picture of your business’s sales and can make better-informed decisions moving forward.
Effect of backlog
Backlog accounting can adversely affect your business in several ways:
Misleading financial statements: Backlog accounting can misrepresent the financial health of your business by showing revenues that have not yet been earned. This can lead to an inflated sense of the company’s financial position and can mislead investors, creditors, and other stakeholders.
Delayed revenue recognition: Due to the backlog of accounting, revenue is recognized only when the work is completed, which can be months or even years after the work is initiated. This can cause a delay in recognizing revenue, which leads to a high gap between perceived revenue & the actual revenue
Difficulty in predicting future revenue: Backlog accounting makes it difficult to accurately forecast future revenue because it does not take into account the timing of when revenue will be earned. This can make it difficult to plan and make informed business decisions.
Increased administrative burden: Backlog accounting can be complex and time-consuming, requiring significant administrative effort to track and manage backlog orders. This can distract management from other critical business activities and increase the risk of errors in financial reporting.
Reason for backlog
The most important reason can be that the company is not maintaining a proper bookkeeping record. Most companies have backlogs since their inception of the company.
A few Common reasons observed are
Lack of resources: If a company doesn’t have enough staff or resources to manage its bookkeeping, it may fall behind.
Inefficient processes: Poor bookkeeping processes can lead to mistakes, delays, and backlogs. This may include not keeping track of receipts, invoices, or other financial documents, or not having a clear system for organizing and categorizing financial transactions.
Rapid growth: As a company grows, its bookkeeping needs become more complex, and it may struggle to keep up with the increased volume of financial transactions.
Who needs backlog clean-up accounting?
Commonly backlog clean is needed for following reasons:
During tax season: If a business has not kept up with their bookkeeping during the year, they may need to do a backlog cleanup before it can file its tax returns accurately and on time.
When seeking financing: If a business is seeking financing, they need to provide accurate financial statements to potential lenders. If their financial records are not up-to-date, they may need to do a backlog cleanup before they can provide accurate financial statements.
When founder need to see & predict growth path: if a business is rapidly growing they need to be in control of their finances to ensure their inflow is higher than outflow. Else they get in growth trap & soon realise that it was not backed up by proper margins.
Actual or potential sale of business: If there is a sale of business, the new owners or managers will need accurate financial records to make informed decisions. If the financial records are not up-to-date, they may need to do a backlog cleanup.
Software For Bookkeeping Catch Up
Business accounting gets messy. When day-to-day operations take precedence, transaction entry, and reconciliations are put on the back burner.
With the luxury of technology, no project is impossible. Accounting software shrinks the time you spend entering transactional data.
Major tip: Use batch transactions in your accounting system. Xero & QBO has bank rules that you can set for recurring bills and invoices, making reconciliation go 10x faster. For year long bookkeeping clean up projects we use custom coding to import large data sets for batch processing.
Process of clean up
Here’s a step-by-step process you can use to plow through your bookkeeping backlog in no time.
Step 1: Gather your receipts
Collect all of the receipts and invoices related to your business expenditure. For Ex:
Customer invoices
Business expenses
Vendor accounts
Step 2: Reconcile your bank accounts
It’s important to reconcile your bank accounts so that you can identify any errors in your company or bank records.
Step 3: Separate personal and business expenses
We always advise our clients to keep their personal and business expenses separate.
Step 4: Go paperless
While you’re catching up on your bookkeeping, make your life easier by making your business paperless.
As you process your paperwork, create digital records of receipts, important documents, and other paperwork using these tools:
Shoeboxed
FileThis
Evernote’s ScanSnap Scanner
Step 5: Collect W-9s, 1099s, and W-2s
If you paid independent contractors and/or employees during the tax year, there’s a good chance you’ll need to file the Form W-9 & Form 1099-MISC
Step 6: Have a professional to update & review your expenses
If you’d prefer to have someone else process that backlog of bookkeeping for you, get in touch. Our Catch Up Bookkeeping Service can help.
Why GATP Solutions
We have more than 12 years of experience in accounting, bookkeeping, financial reporting, accounts payable, accounts receivable, and budgeting; 10 years using solely Intuit QuickBooks, both desktop and online.
We have worked with several clients where we have updated their books for the past several years, prepared & filed tax returns. We use several automated tools to scan receipts & import them into books
We have worked extensively using online banking & setting up rules to automate accounting. In case the online banking could not be set up (due to functionality not in your current bank or transactions related to the period above 6 months) We have imported the data using importing tools to update & reconcile the books efficiently & accurately.
We have cleaned up incorrect rules & set them up to ensure the reconciliations can be done smoothly.
