9 Things to Do if Your Books Don’t Balance

Balanced books are a sign of a successful business. It provides a complete picture of your finances, helps with decision-making, and ensures compliance with tax laws. But what happens when the numbers just don’t add up?

Don’t panic! In this blog post, we’ll cover 9 actionable steps to get your finances back on track and ensure that your books are in perfect harmony. 

Although it may seem tedious and time-consuming, having balanced books is crucial for your company’s success and stability. From double-checking transactions to seeking professional help, we’ve got you covered.

So, if you’re feeling overwhelmed by discrepancies in your financial records, keep reading for expert bookkeeping tips on regaining control and balancing those books like a pro!

What Is Book Balancing?

What is Book Balancing

Balanced books refer to the accurate recording and tracking of all financial transactions within a specific period. This includes income, expenses, assets, liabilities, and equity.

When your books are balanced, it means that all the numbers add up correctly and reflect the true financial standing of your business.

The primary reason for keeping balanced books is to get detailed insights into your business’s financial health. It also lets you promptly track any discrepancies or irregularities in your finances.

These could be signs of fraud or errors that need immediate attention before they become bigger issues.

Maintaining balanced books also ensures compliance with tax laws and regulations set by the government. Plus, timely reporting of all financial transactions makes you less likely to encounter issues with tax authorities during audits.

This can save you from hefty fines and penalties that could significantly affect your bottom line.

9 Things to Do if Your Books Don’t Balance

9 Things to Do if Your Books Don’t Balance

Despite your best efforts, there may be times when your books don’t balance.

This can be frustrating and stressful, but it is important to address the issue promptly and take the necessary steps to correct it. In this section, we’ll discuss some key steps you can take if your books don’t balance.

Staying on top of your finances and addressing any imbalances as soon as possible is important. Ignoring them can lead to bigger problems down the road and make it difficult to track how your business is performing.

However, if you find yourself in this situation, we have compiled the 9 best steps you can take to resolve it:

1. Double Check Your Entries

The first thing to do when your book doesn’t balance is double-check your entries. It involves reviewing and verifying your financial transactions to ensure they have been recorded in your books.

This means reconciling your bank statements, credit card statements, and any other financial documents before beginning the process. By doing this, you can identify any discrepancies or missing transactions that may affect the accuracy of your records.

Next, review each transaction individually to look for duplicate entries or incorrect amounts. It’s also helpful to compare each entry with its corresponding source document, such as an invoice or receipt, to ensure they match up.

Paying attention to small details, such as correct dates and account numbers, is also crucial. These little things can easily be overlooked but can greatly impact the overall accuracy of your books.

When reviewing large batches of transactions at once, it may also be helpful to have someone else review your work for an additional set of eyes.

In addition, consider using technology tools such as automated bookkeeping software or spreadsheets with built-in formulas for calculations to minimize human error during data entry.

2. Reconcile Bank Statements

Reconciling bank statements involves comparing the transactions in your company’s financial records with those listed on your bank statement to ensure they match. This process helps you identify and correct any discrepancies, ensuring the accuracy of your financial records.

The first step is to gather all relevant documents, including your monthly bank statement and financial records. Then, start comparing the beginning balance on your bank statement with the balance in your accounting records.

These balances should match; otherwise, it could indicate a mistake in your accounting records or the bank’s record-keeping.

Go through each deposit listed on your bank statement and compare them against the deposits recorded in your books.

Check deposit slips or contact customers/vendors for verification if you find any discrepancies. Similarly, go through each check on the bank statement and in your books. 

After verifying deposits and checks issued, reconcile other transactions to ensure they are correctly recorded in your books and the bank statement.

Once all the transactions have been reconciled, check if the ending balance on your bank statement matches your book’s ending balance. If they match, congratulations! Your books are now balanced. 

3. Review Accounts Receivable and Payable

Accounts receivable and payable represent the money that you are owed by your customers (accounts receivable) and the money that you owe to your suppliers (accounts payable).

Accurately tracking and managing these accounts is crucial for maintaining a healthy cash flow, avoiding late payments or collections, and ultimately keeping your business financially stable.

Pull a detailed report of all outstanding invoices to begin reviewing your accounts receivable. This report should include information such as invoice numbers, due dates, amounts owed, and customer names.

Next, compare this report to the total amount shown on your balance sheet for accounts receivable. If there are any discrepancies between the two numbers, it could indicate an error in recording or collecting payments from customers.

If you notice any discrepancies, look closely at each invoice to identify where the error may have occurred. It could be as simple as a typo in recording a payment or forgetting to bill a customer for services rendered.

Once you have identified the issue(s), make necessary adjustments and update your records accordingly.

Regularly reviewing your accounts receivable and payable is crucial for maintaining proper financial records and ensuring the health of your business.

You can avoid costly mistakes and maintain a positive cash flow by promptly identifying and addressing any discrepancies or issues.

4. Review Income and Expense Accounts

Reviewing your income and expense accounts is essential to ensure they are balanced. Income accounts track the money coming into your business, while expense accounts record the money going out.

When these two categories are not aligned, they can create discrepancies in your financial records and make it difficult to assess your business’s financial health.

The first thing you should do when reviewing your income and expense accounts is to check for any errors or omissions. It’s not uncommon for mistakes to occur during data entry, such as recording a transaction under the wrong account or entering an incorrect amount.

These errors can throw off your entire bookkeeping system, so catching them early is crucial.

Review Income and Expense Accounts

Next, compare your bank statements with the corresponding transactions in your income and expense accounts. This process is known as bank reconciliation and involves verifying that all transactions recorded in your books match those recorded by the bank.

Any discrepancies between the two should be investigated further to determine if they are due to timing differences or other factors.

Another important aspect of reviewing income and expense accounts is ensuring that all transactions are properly categorized. Every business has a unique chart of accounts categorizing different income and expenses.

It’s crucial to consistently use these categories when recording transactions to ensure error-free reporting.

5. Verify Cash Transactions

Verifying cash transactions ensures that your books are balanced and helps identify discrepancies or errors in your accounting process.

By comparing the cash balance in your books with the actual cash on hand, you can identify any errors or omissions in your accounting entries.

The first step in verifying cash transactions is maintaining proper records of all incoming and outgoing funds. This includes keeping receipts, invoices, bank statements, and other relevant documents organized and up-to-date.

Set a schedule for reconciling your bank statements with your bookkeeping records to catch any mistakes or discrepancies before they become major issues.

Conduct surprise audits regularly to ensure that all cash transactions are properly recorded and that fraudulent activities are not taking place. By implementing the abovementioned tips, you can ensure that your books are balanced and your business’s financial health is in check.

Remember to stay organized, reconcile regularly, and implement proper internal controls for a smooth and effective verification process.

6. Consider Accrual Adjustments

Accrual accounting is a method of recording revenue and expenses when they are earned or incurred, regardless of when the money actually exchanges hands.

This differs from cash-based accounting, where transactions are only recorded when cash is received or paid out. While cash-based accounting may seem simpler, accrual accounting provides a more accurate representation of a company’s financial health.

Accrual adjustments also account for any prepaid or deferred expenses and income. Prepaid expenses refer to payments made for goods or services yet to be received, while deferred income refers to payments received for goods or services yet to be provided.

These items must be adjusted accordingly to reflect on your balance sheet.

By tracking and adjusting for accrued income and expenses, you can ensure the accuracy of your financial statements, help with tax planning and budgeting, and allow businesses to understand their current finances and projected future financial standing.

It’s important to regularly review and make any necessary accrual adjustments to ensure that your books are balanced. This may require the help of a professional accountant or bookkeeper who is well-versed in accrual accounting methods.

By considering and making these adjustments, you can have confidence in the accuracy of your financial records and make informed decisions for your business.

7. Keep Personal vs. Business Accounts Separate

One of the main reasons to keep your personal and business accounts separate is for tax purposes. The IRS requires detailed records of all financial transactions for both personal and business activities.

If these two types of transactions are mixed together, it can be challenging to determine which expenses were for personal or business use. This could lead to incorrect tax filings, resulting in penalties or audits.

Another reason to keep personal and business accounts separate is for liability protection. As a small business owner, you want to protect your personal assets in case something goes wrong with your business.

By mixing your personal and business funds, you open yourself up to potential legal issues if someone decides to sue you or you face financial difficulties.

Keep Personal vs. Business Accounts Separate

Additionally, separating accounts can help with budgeting and cash flow management. When everything is mixed together, it may be challenging to see where exactly money is coming from or going towards.

With separate accounts, you can clearly see how much money is being generated by the business versus how much is being spent on personal items.

To keep things organized, consider opening a business bank account for your small business and a credit card solely used for company-related purchases.

Ensure all incoming payments from clients or customers go directly into the business account, and all expenses related to the business are paid from that account.

8. Consult With An Accountant

One of the best things you can do if you struggle with unbalanced books is consult an accountant. Accountants have extensive knowledge and expertise in managing financial records and can provide valuable insights into resolving any discrepancies you may encounter.

The first step in consulting with an accountant is to gather all relevant financial documents and records. This includes bank statements, invoices, receipts, and other documentation related to your business’s financial transactions.

Having all this information organized and readily available will help the accountant better understand your financial situation.

An experienced accountant will be able to review your documents thoroughly and identify any errors or discrepancies that may have caused the imbalance in your books.

They may also offer suggestions for improving record-keeping processes or implementing new systems to prevent future imbalances.

In addition to helping resolve immediate issues with unbalanced books, accountants can also provide valuable advice on budgeting, cash flow management, tax planning, and other important aspects of financial management for small businesses.

Their expertise can help set your business up for long-term success by ensuring proper bookkeeping practices.

9. Make Adjustments

Making adjustments is a crucial step in the process of balancing your books. It involves identifying and correcting any discrepancies or errors that may be causing your books not to balance.

While it may seem daunting, you can get your books back on track with careful attention and a systematic approach.

In some cases, adjustments may need to be made due to timing differences between when you recorded a transaction and when the bank processed it. For example, if you wrote a check at the end of one month but it wasn’t cashed until the following month, this could cause a discrepancy in your records. 

Another common reason for book imbalances is human error—whether it’s accidental data entry mistakes or miscalculations while reconciling accounts.

To avoid these types of errors from occurring again in the future, consider implementing processes such as double-checking entries before finalizing them or having someone else review important financial reports.

Making adjustments is an essential part of balancing your books. It’s also important to review and reconcile your books regularly rather than wait until the end of the year.

This will help catch any discrepancies early on and make identifying and resolving them easier.

Keep Your Books Balances with doola

When to Choose doola

Balancing books can be tedious and time-consuming for small business owners, especially if they have little to no prior knowledge or experience in bookkeeping. It also requires careful attention to detail, thus taking your focus away from critical day-to-day operations.

However, despite your best efforts, there may be times when your books don’t balance.

Luckily, managing your books becomes smooth sailing with doola, an easy-to-use platform that simplifies business formation, recordkeeping, and tax filings to ensure your financial affairs are always in order.

Organize all your financial information in one place with features like automated bank feeds and easy transaction categorization. 

Get started with doola Bookkeeping as your trusted financial recordkeeper to automate bookkeeping and reconciliation so you can stay on top of open transactions, monitor spending, and effortlessly keep your books balanced.

Book a free consultation today to learn how we can help you achieve financial freedom and business growth!

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