The 7 QuickBooks Problems I Find Most Often When Taking Over a Company’s Books

When I take over the bookkeeping for a company, I rarely find a QuickBooks file that is completely wrong. More often, I find a file that has slowly drifted away from regular updates.

A few transactions may be categorized incorrectly. A bank reconciliation skipped. An old customer payment never matched to an invoice. A loan payment was recorded entirely as an expense. Individually, these may seem like minor bookkeeping issues. Over months or years, however, they can add up to financial statements that no longer give the business owner a reliable picture of the company.

At QB-LA, we regularly take over QuickBooks files from business owners who have been managing the books themselves, from in-house employees whose responsibilities have changed, or from previous bookkeepers and accounting firms. Although every company is different, there are certain problems I see again and again.

Here are seven of the most common.

1. Bank and Credit Card Accounts That Have Not Been Properly Reconciled

This is probably the first place I look when reviewing a company’s books.

A bank balance showing in QuickBooks does not necessarily mean the account has been reconciled. Reconciliation means comparing the transactions recorded in QuickBooks against the actual bank or credit card statement and accounting for every difference.

I frequently find accounts that have not been reconciled for several months, or accounts that appear to have been reconciled but contain old outstanding transactions that should have been investigated long ago.

Unreconciled accounts can hide duplicate transactions, missing expenses, deleted payments, incorrect deposits, and other problems. If the bank and credit card accounts cannot be trusted, it becomes difficult to trust the financial statements built from them.

One of the first things we do when taking over a QuickBooks file is determine when each balance sheet account was last properly reconciled and whether the reconciliation actually makes sense.

2. Income That Has Been Recorded Twice

QuickBooks Online’s bank feeds are extremely useful, but they can also create problems when they are not used correctly.

A common example occurs when a company creates invoices and records customer payments in QuickBooks, then later sees the corresponding bank deposit appear in the bank feed and adds it as new income. The result is the same revenue being recorded twice.

The opposite can happen too. Transactions may be matched incorrectly, deposits may be combined improperly, or payments may remain sitting in Undeposited Funds even though the money reached the bank months ago.

These problems can make revenue look considerably better or worse than it actually was.

When reviewing a new client’s books, I compare the company’s invoicing, deposits, bank activity, and income accounts to make sure money is being recorded once, and only once.

3. Expenses That Have Been Put in the Wrong Accounts

Categorizing expenses seems straightforward until you look at several thousand transactions accumulated over a few years.

I regularly find software subscriptions recorded as office supplies, equipment purchases recorded as ordinary expenses, personal purchases mixed with business expenses, loan payments categorized incorrectly, and transactions assigned to catch-all accounts such as “Miscellaneous.”

Some miscoding will not dramatically change the company’s total profit, but it can make individual expense categories almost useless for management purposes.

It can also create problems when the books are handed to a CPA or tax preparer. If major purchases, loan interest, owner distributions, payroll expenses, and other transactions are sitting in the wrong accounts, someone eventually has to untangle them.

A good chart of accounts should help explain how the business operates. When nearly everything ends up in a handful of vague categories, QuickBooks loses much of its value as a management tool.

4. Old Accounts Receivable That Nobody Has Cleaned Up

Another area I check carefully is Accounts Receivable.

It is not unusual to find invoices that have supposedly been outstanding for two, three, or even five years. Sometimes the customer really does owe the money. Quite often, however, the invoice was paid and the payment was recorded incorrectly, the invoice was duplicated, a credit was never applied, or the balance should have been written off long ago.

This matters because an overstated Accounts Receivable balance makes the balance sheet appear stronger than it really is.

It can also make the company’s customer records confusing. The owner may look at an aging report showing thousands of dollars in outstanding invoices that nobody actually expects to collect.

We review those old balances individually and determine whether they represent real receivables or bookkeeping problems that need to be corrected.

5. Loans and Credit Lines That Do Not Match the Actual Statements

Loans are another frequent source of QuickBooks problems.

A loan payment normally contains more than one component. Part of the payment reduces the loan principal, while another portion may represent interest or fees. Recording the entire payment as an expense causes both the Profit and Loss statement and Balance Sheet to become inaccurate.

I also see loans that were set up incorrectly from the beginning, credit lines that were treated like ordinary credit cards, and loan balances that have not been compared with lender statements for years.

The balance shown in QuickBooks should be reasonably consistent with the lender’s records after accounting for timing differences.

If QuickBooks says the company owes $35,000 but the lender says $52,000, that difference deserves an explanation.

6. Payroll Liabilities That Do Not Make Sense

Payroll is an area where seemingly small bookkeeping errors can become expensive problems.

When reviewing a company’s QuickBooks file, I pay particular attention to payroll tax liability accounts. These accounts should represent money collected or accrued for payroll taxes that has not yet been paid.

Sometimes I find balances that have been accumulating for years. Other times the account has a negative balance, which can indicate payments were recorded without the corresponding liability being entered correctly.

The problem may simply be bookkeeping. It may also indicate a payroll filing or payment issue that needs immediate attention.

Either way, payroll liabilities should not be ignored simply because payroll checks are being issued successfully.

7. The Balance Sheet Has Been Largely Ignored

Many small business owners spend most of their time looking at the Profit and Loss statement. That is understandable. Revenue, expenses, and profit are usually the numbers they care about most from month to month.

But the Balance Sheet often tells me much more about the condition of the bookkeeping.

That is where I find unreconciled bank accounts, old receivables, incorrect loan balances, strange negative asset accounts, payroll liabilities, uncleared checks, old Undeposited Funds balances, and owner transactions that have been recorded incorrectly.

A Profit and Loss statement can look perfectly reasonable while the Balance Sheet is telling an entirely different story.

For that reason, proper bookkeeping involves reviewing both reports together. The company’s income statement explains what happened during a period of time. The balance sheet helps confirm whether those transactions were recorded in a way that makes sense.

QuickBooks Problems Usually Accumulate Gradually

Most messy QuickBooks files did not become messy because someone made one catastrophic mistake.

They usually got there slowly.

A business owner became too busy to reconcile every month. An employee started categorizing transactions without fully understanding the chart of accounts. A new credit card was added but never reconciled. Payroll changed providers. A loan was refinanced. Someone discovered the bank feed’s “Add” button and began using it for transactions that already existed.

After a year or two, nobody is entirely sure which numbers can be trusted.

That is why taking over a company’s bookkeeping often begins with a cleanup rather than simply entering the next month’s transactions.

Before We Change Anything, We Find Out What the Books Are Actually Telling Us

At QB-LA, our first job when taking over an existing QuickBooks company is not to immediately start changing transactions. It is to understand how the books got where they are.

We review the chart of accounts, bank and credit card reconciliations, Accounts Receivable and Accounts Payable, payroll accounts, loans, equity accounts, and other significant balance sheet items. We also look for unusual transactions, duplicate activity, old balances, and inconsistencies that may point to larger problems.

From there, we can determine what needs to be corrected and what should be left alone.

For some businesses, the cleanup is relatively minor. For others, we may need to work through several months or years of transactions before the financial reports become dependable again.

The goal is not simply to make QuickBooks look cleaner. The goal is to get the books to the point where the owner, bookkeeper, CPA, and tax preparer can rely on the information they contain.

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