Books Behind in Your Trades Business? Start Here

Start with these four steps

1. Gather what you have. Collect business bank and card statements, receipts, customer invoices and payment records, paid bills, payroll records, and available job records.
2. Find the last reconciled month. Look for the latest month when the bank statement and books agreed.
3. Write down the gaps. Keep one list of missing documents and transactions you cannot explain.
4. Bring in help when you need it. Take the records and your list to a bookkeeper if you cannot identify transactions or reconcile the account. Ask a tax professional about tax reporting questions.

You can start even if some receipts are missing. Put the records you have in one place and mark what you still need.

The IRS says, “Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents.” Its examples include “Credit card receipts and statements.” See the IRS records guidance.

Find where the books stopped agreeing

Open your bookkeeping records and look for the latest completed bank reconciliation. Check that month’s bank statement against the books. As the IRS puts it: “When you receive your bank statement, make sure the statement, your checkbook, and your books agree.” Read IRS Publication 583.

If you cannot verify the last reconciled month, write that down instead of guessing. If someone kept your books before, ask where their work stopped.

Keep one list of unanswered items

Add a note whenever you find something you cannot match or explain, such as:

• A card charge with no receipt
• An invoice with an unclear payment status
• A bill that may have been paid from a personal account
• A payroll entry that does not match the record you have
• A bank deposit you cannot identify

You do not need to settle every item as you find it. The list shows you and anyone helping you what needs an answer.

Prepare for a bookkeeper or accountant

Share the records from the last reconciled month forward, your bookkeeping file, and your list of gaps. If you are unsure where to start, say so. Ask:

• Which month can we rely on?
• Which records are still missing?
• Which transactions need my explanation?
• Do any tax questions need a tax professional?

If tax reporting is uncertain, bring that question to a tax professional. The IRS says, “Many tax professionals inspect books and records to help a business make sure that it is reporting all income.” Read its small-business guidance.

Once the books are caught up, use Is Your Trades Business Financially Healthy? to set up a regular financial review.