Catch up bookkeeping: a month-by-month plan to get your books current

Choose where to start

The start date is the first day after the last period you can trust. Usually that is the day after the last fully reconciled month. Check it: the reconciled balance for that month should match the bank statement closing balance for the same date.

If nothing has been reconciled, or the old reconciliations are unreliable, start at the beginning of the earliest tax year that is not filed yet, or the year after the last filed return. Starting earlier than you need adds work. Starting later than you need leaves gaps that your tax preparer will find.

Use the same start date for every account. A checking account reconciled to March and a credit card reconciled to January leave transfers and card payments that cannot be matched.

Gather statements for every account

Make a grid with accounts down the side and months across the top, and tick each statement as you download it. Include accounts that are easy to forget: a second checking account, a savings account used for taxes, a business credit card used once, a loan, and payment processors that hold money before paying it out.

You also need the supporting documents that explain transactions. The IRS’s page on what records to keep lists supporting documents such as sales slips, paid bills, invoices, receipts, deposit slips and canceled checks, and for employment tax records says to keep all records of employment for at least four years.

Online banking may not show every older statement. If one is missing, ask the bank for a copy early, so a slow request does not hold up the month that needs it.

How far back bank feeds go

Bank feeds usually cover only recent months, so a long catch-up nearly always needs some manual uploads.

In QuickBooks Online, Intuit’s global bank feeds page says that when you connect, you select how far back you want to download transactions: some banks let you download the last 90 days, and others can go back as far as 24 months. Intuit’s help article on manual uploads says to use upload when you cannot connect your bank or want to add transactions from before you connected. It accepts CSV, TXT, QBO or OFX transaction lists, up to 1,000 lines per upload, and says a transaction list file must be 350 KB or less. It also accepts an account statement as a PDF or image.

In Xero, the help article on connecting your bank says you confirm the date you want transactions to start from when you set up the feed. Xero’s article on manual imports says you can import historic transactions if the feed supports this, and that you might need to manually import transactions dated before the automatic feed started. Xero accepts OFX, QFX or QuickBooks, QIF, PDF and CSV files, and recommends OFX where possible. After a feed starts, Xero advises checking for missing or duplicate transactions.

Make the manual uploads stop the day before the feed’s first transaction, or, where the software lets you choose, set the feed start date to the day after your last manual upload. Overlapping a feed with an upload creates duplicates that you then have to find and delete.

When older months are only PDFs

Older statements are often available only as PDFs, and some banks do not offer CSV or OFX downloads for older periods. Typing them in by hand is slow and error prone.

Fulla Ledger converts statement PDFs, including scanned ones, into transaction rows. You review each row against the source page, correct anything that needs it, and approve before export. You can then export CSV or OFX and upload the file to QuickBooks Online or Xero yourself, or export XLSX to work in a spreadsheet. Fulla does not connect to either product directly.

Whatever method you use, check each converted month before uploading: the opening balance plus the transactions should equal the closing balance printed on the statement.

Categorize and reconcile, oldest month first

Work forward from the start date one month at a time. Each month’s closing balance is the next month’s opening balance, so a mistake in an early month carries into every later one. Finding it at the month it happened is far quicker than finding it six months later.

Set up bank rules before you start categorizing, so recurring transactions like rent, subscriptions and payroll are categorized the same way every month. Transfers between your own accounts, credit card payments and loan payments need to be matched to the other account, not categorized as income or expense.

IRS Publication 583 recommends reconciling your checking account each month. During a catch-up, that means one reconciliation per account per month, in order. Keep each month’s reconciliation report with the statement.

When a month will not reconcile, the usual causes in a catch-up are a missing statement page, a transaction uploaded twice where a manual upload overlaps a feed, a transfer recorded in only one account, or an opening balance that does not match the previous statement.

Overdue tax filings

Catch-up bookkeeping often goes with returns that are late. The IRS page on filing past due tax returns says to file all tax returns that are due, regardless of whether you can pay in full, and to file the same way and to the same location as an on-time return, or to the location on any notice you received.

The same page explains why timing matters. Filing and paying limits interest and late payment penalties. If you are due a refund, you must file to claim it within 3 years of the return due date. If you do not file, the IRS may file a substitute return that might not give credit for deductions you are entitled to. If you cannot pay in full, the page describes requesting an additional 60 to 120 days to pay, or an installment agreement.

Prioritize the books for the tax years that are due first, and work with a tax professional on the returns themselves.

A routine to stay current

Catching up once is a project. Staying current is a habit. A light routine is enough for most small businesses:

• Weekly: review and categorize new bank and card transactions, and attach receipts.
• Monthly, in the first week: download every statement, reconcile every account, review receivables and payables, and lock the month.
• Quarterly: review the profit and loss against the same quarter last year and check estimated tax payments with your tax preparer.
• Yearly: close the year, keep the statements and reconciliation reports, and confirm the opening balances for the new year.