Cleanup & catch-upQuickBooks Cleanup: The 11 Messes We See Most Often

Every QuickBooks file has a personality. Some are tidy minimalists. Some are the kitchen junk drawer: rubber bands, a takeout menu from 2019, three dead batteries and, somehow, the good scissors.

The interesting part is that junk drawers tend to hold the same things. After enough files, you start to recognize the same messes showing up in businesses that have nothing else in common. A recruiting firm and a roofing company can have identical problems in QuickBooks, created in identical ways.

Below are the 11 we see most often, grouped by where they hide, plus how to spot each one yourself before anyone starts a QuickBooks cleanup.

Bank and bank feed messes (1 to 3)

1. Accounts that were never reconciled, or were "reconciled" by force. A reconciliation should tie the QuickBooks balance to the bank statement balance. If someone clicked through with a difference, QuickBooks posts it to an account called Reconciliation Discrepancies. Any balance there is a flag.

1. Duplicate transactions. When a bank feed disconnects and reconnects, it can pull the same weeks in twice. If they're all accepted, expenses and income are overstated, and the account won't reconcile.

1. Transfers booked as income or expense. Moving $5,000 from savings to checking isn't income. Paying the credit card bill isn't an expense (the purchases on the card were the expenses). Categorize these wrong and the P&L fills up with money that was only moving between your own accounts (and card purchases get counted twice).

Holding-account messes (4 to 6)

1. Uncategorized Income, Uncategorized Expense and Ask My Accountant. These are meant to be temporary parking spots. In a messy file they become long-term storage, with months of transactions sitting there. We wrote a full guide to clearing the uncategorized expense and Ask My Accountant pile.

1. A stuffed Undeposited Funds account. Customer payments get received into Undeposited Funds, then they're supposed to be grouped into a deposit that matches the bank. If the deposits were recorded separately from the bank feed instead, the payments stay stuck there, and revenue may be counted twice. See why Undeposited Funds makes your bank balance and books disagree.

1. Opening Balance Equity with a balance. QuickBooks uses this account when balances are entered during setup. It should be zeroed out into the right equity accounts once setup is done. If it isn't, it's usually a sign the starting numbers never tied to the prior year's balance sheet. Our article on opening balances in QuickBooks explains the fix.

Customer and vendor messes (7 and 8)

1. Open invoices that were actually paid. The customer paid, the money hit the bank, and someone categorized the deposit as income instead of applying it to the invoice. Now income is double counted and the A/R aging report says the customer owes you money they've already sent.

1. Open bills that were actually paid. The mirror image: a bill paid by card or check got booked as a new expense instead of a bill payment. Expense is doubled, and A/P shows a debt that doesn't exist.

Payroll, loans and the chart of accounts (9 to 11)

1. Payroll recorded as lump withdrawals. If payroll shows up only as bank withdrawals labeled "Payroll," you lose the split between wages, employer taxes and liabilities, and the payroll tax liability accounts never clear.

1. Loan payments recorded entirely as expense. A loan payment is part principal (which reduces the loan balance on the balance sheet) and part interest (an expense). Booking the full payment as expense overstates costs and leaves the loan balance frozen in time.

1. A cluttered chart of accounts. "Office Supplies," "Office supplies," "Supplies - office" and "Office Exp" all exist, each with a little bit in it. Reports become hard to read and harder to compare month to month. Merging and simplifying accounts is often the last step of a cleanup, and the most satisfying one.

A worked example: how three messes stack up

Imagine you run a small staffing agency. In March:

• A $40,000 customer payment was deposited and categorized to "Sales" instead of applied to its invoice (mess 7).
• The bank feed duplicated two weeks of transactions, including $12,000 of contractor payments (mess 2).
• A $3,500 credit card payment was categorized as "Office Expense" (mess 3).

March revenue is overstated by $40,000. Expenses are overstated by $15,500. The A/R aging shows the client $40,000 late. Net income on the P&L is off by $24,500, and the checking account won't reconcile because of the duplicates. Each mistake took about ten seconds to make. Untangling them takes careful work, because you have to find them first.

How to check your own file in 15 minutes

1. Run a balance sheet as of today and look for balances in Reconciliation Discrepancies, Opening Balance Equity, Undeposited Funds and any "Uncategorized" account.
2. Check the reconciliation history for each bank and card account. Note the last reconciled month.
3. Run the A/R aging summary and the unpaid bills report. Ask whether those old balances are real.
4. Glance at the chart of accounts for duplicates.

If you find more than two of these, you're likely looking at an accounting cleanup project rather than a quick fix. For what that project involves from start to finish, read what cleaning up the books actually involves.