The Ultimate January Checklist for Bookkeepers

January can be a stressful month for bookkeepers. In addition to our normal workload, we have additional payroll deadlines, 1099s are due, we’re trying to close out 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 frenetic busyness of the month and start February feeling like we barely survived, much less did the best possible work on our clients’ books. This is where the below checklist comes in handy.

The following 10 items might not be on your radar in January, but completing them will elevate your firm’s reputation as a top-notch bookkeeping services provider. As a bonus, they add only a few minutes to your annual closing processes.

1. Check all bank and credit card accounts for unreconciled transactions. As more businesses opt for electronic payments, unreconciled expenses are becoming less common. Unless your client writes a large number of checks, unreconciled expenses in their bank accounts should send up a red flag in your end-of-year review process, as they could indicate duplicate – and therefore overstated – expenses.

Even if your client does write a fair number of checks, you should still examine any unreconciled transactions. If the payment truly is outstanding, consider asking your client to contact the payee to determine if there is a reason why they have not presented 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 happened around the closing date of the most recent statement.

2. Check for personal expenses on the books. Whether your client grabbed the wrong credit card or intentionally ran personal expenses through the business for a tax deduction, catching any personal expenses on the books prior to sending them to the accountant for taxes is crucial. You’ll often find these expenses buried in the meals, entertainment and office expenses categories. You can also pull a report of expenses by vendor to help you find personal expenses. For example, there are very few business reasons for a toy store to show up in your marketing client’s books.

Sometimes, though, your client will have a legitimate business reason for making a purchase that isn’t tax deductible. Many bookkeepers consider these to be personal expenses and post them to the draws/distributions account. Although this is correct for tax purposes, it can hamper your client’s ability to use their financial statements to run their businesses throughout the year.

Whenever you come across an expense that might not be tax deductible, consider moving it to an expense account called “CPA Review.” You can set up sub accounts under the parent CPA Review account to make this section of the P&L more meaningful to your clients and their accountants.

3. Look for business expenses that should be on the books, but aren’t. There are a number of reasons why an expense that should be on the books isn’t. One of the most common reasons is that the business was low on cash, so the business owner used personal savings – or a personal credit card – to make a payment, then forgot to share this information with you.

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

Pay attention to income as you’re completing this step, too. If income has increased – or decreased – more than you think it should have given the trends you’ve seen in the client’s business throughout the past year, take a closer look. The income could have been double-booked or misclassified.

4. Reconcile these balance sheet accounts. Don’t end your reconciliation efforts at bank and credit card accounts. Reconcile all the accounts on the balance sheet, paying special attention to the undeposited funds account, loans accounts, payroll liabilities and accounts payable and accounts receivable. If you use QuickBooks, you can reconcile every account on the balance sheet just as you would a checking or credit card account.

This is also a great opportunity to check for retired assets that should be removed from the books. And if your client owns multiple businesses, be sure to check for intercompany loans or transfers accounts on the balance sheets for each business and tie those accounts out.

5. Check retained earnings. In order to ensure there were no transactions posted to a prior year, make sure retained earnings on your balance sheet as of 12/31 of the previous year match retained earnings on the balance sheet submitted with the tax return for the year prior.

Here’s an example. Let’s say your client’s balance sheet dated 12/31/2021 shows retained earnings of $37,590. Compare that amount to the Schedule L for the client’s 2020 tax return. If Schedule L shows a retained earnings amount of $37,590 as well, then you are good to go. If it shows any other amount, though, you will need to do some research to find the cause of the change. Depending on the size and nature of the change, most tax accountants will just have you change the date of the transaction so it appears in the year just completed (in this case, 2021). Occasionally, though, the accountant will decide to amend the tax return for the year prior (2020).

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

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

6. Clear out suspense accounts. Reclassify transactions in any suspense accounts to a standard account in the chart of accounts. Suspense accounts include uncategorized income, uncategorized expenses, uncategorized assets, “ask my accountant,” “ask my client” and any other accounts where you have parked transactions until you can get guidance on how to properly categorize them.

I also like to keep miscellaneous income and miscellaneous expense accounts at or near $0. The only transactions that should be in these accounts are the ones that truly do not fit anywhere else and are so rare they don’t warrant their own category in the chart of accounts.

7. Check for expense classification consistency. From a tax perspective, it doesn’t make a lot of difference if an expense is classified as dues and subscriptions one month and office expenses another month. In order for the financial statements you provide to your clients to be meaningful from a management standpoint, though, you want to make sure expenses are classified consistently from month to month. I create a customized “transaction list by vendor” report that shows the account splits to quickly check for expense classification consistency.

8. Make sure all expenses include a payee name. You want to complete this before issuing 1099s. If you use QuickBooks, the best way to make sure all expenses include a payee name is to run the “expenses by vendor summary” report for the year just completed. Scroll all the way to the bottom of the report and look for “not specified.” Drilling into 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 the expenses by vendor summary report to Excel, sorting on the account column, and then using the reclassify transactions feature in accountant tools to assign vendor names to the transactions on an account-by-account basis.

9. Reconcile quarterly payroll returns to the annual summary reports and the books. Before you issue W-2s to your clients’ employees and file Form 940 and Q4 Form 941, make sure the totals on the W-3 or other summary reports match the sum of all four quarters’ payroll reports. Then compare the total wages, payroll tax expenses, benefits and other payroll items to the P&L for the year. Also take a look at payroll liabilities on the balance sheet to ensure the balances due match any outstanding payments for Q4.

10. Look for opportunities to serve your clients better. This last item will serve your firm as well as your clients’ businesses. Does the client’s P&L show a large net income, yet there is little cash in the bank? If so, they might benefit from cash management consulting. Did you find a lot of errors during your year-end review? Then maybe the client or their staff needs some training on how to properly use QuickBooks, or perhaps they could benefit from some automation to help reduce errors. 

Yes, this is all “extra” work, and it comes during a month when time is already at a premium. The results, however, are a cleaner set of financials that is more meaningful to your clients and suggestions you can use to help them move their businesses forward in the new year. And this is what moves you from just another bookkeeper to a top-notch bookkeeping services provider.