You open QuickBooks Online and see it:
437 uncategorized transactions.
Maybe you haven’t touched your bookkeeping in six months. Maybe it’s been a year. Or maybe your bank account has been connected to QuickBooks this whole time, so you assumed most of the bookkeeping was happening automatically.
Now tax time is getting closer, you need financial reports, or you simply want to know how your business is doing, and there are hundreds of transactions waiting for attention.
As a QuickBooks Online bookkeeper, I see this situation often.
Small business owners are busy running their businesses. You’re taking care of customers, completing projects, sending invoices, paying employees, solving problems, and trying to grow. Bookkeeping gets pushed to next week.
Then next week becomes next month.
Before you know it, you’re looking at months of uncategorized transactions and wondering where to even begin.
The answer is not to start clicking “Add” until they disappear.
A proper QuickBooks cleanup is about much more than clearing the bank feed. The goal is to make sure your transactions are recorded correctly, your accounts are reconciled, and your financial reports actually reflect what’s happening in your business.
Here’s where I would start.
First: Uncategorized Doesn’t Just Mean “Pick an Expense Category”
One of the biggest mistakes I see during catch up bookkeeping is treating every uncategorized transaction as something that simply needs an expense category.
Some transactions are expenses.
But others might be:
- Transfers between bank accounts
- Credit card payments
- Loan payments
- Owner contributions
- Owner draws or distributions
- Customer payments
- Refunds
- Reimbursements
- Payroll transactions
- Asset purchases
- Duplicate transactions
That’s why I don’t recommend rushing through hundreds of transactions simply to get the number down to zero.
If you categorize a transaction incorrectly, QuickBooks may look cleaner, but your financial statements may actually become less accurate.
For example, if you transfer $10,000 from business checking to business savings and record the deposit as income, your Profit & Loss may show $10,000 of revenue your business never actually earned.
The transaction has been “categorized.”
But the bookkeeping isn’t correct.
That’s an important distinction.
Step 1: Make Sure All Business Accounts Are in QuickBooks
Before beginning a large bookkeeping cleanup, I would first look at the overall structure of the QuickBooks file.
Are all of the business accounts represented?
Depending on the business, that might include business checking, savings, credit cards, loans, lines of credit, and other accounts used for business activity.
This matters because transactions often move between these accounts.
Suppose you transfer $5,000 from business checking to business savings.
If both accounts are properly set up in QuickBooks, that should generally be reflected as money moving between the two accounts.
Your business didn’t earn another $5,000.
It didn’t spend $5,000 either.
The money simply moved.
When accounts are missing or haven’t been maintained properly, transfers can easily be mistaken for income or expenses.
Before cleaning up individual transactions, make sure you’re working with the complete financial picture.
Step 2: Start With Recurring Transactions You Recognize
If I opened a client’s QuickBooks file and saw 437 transactions waiting for review, I wouldn’t necessarily start with the oldest transaction and work straight down the list.
I would look for patterns.
Most businesses have recurring transactions that are relatively easy to identify.
You might see the same software subscription every month, recurring insurance premiums, internet and phone bills, rent, utilities, or regular purchases from familiar vendors.
Working through recognizable recurring transactions first can quickly make a large QuickBooks cleanup feel much more manageable.
However, don’t automatically assume every transaction from the same vendor belongs in the same category.
You might normally purchase office supplies from a particular retailer, for example, but one month you bought a computer there.
Same vendor. Different type of purchase.
This is one reason automated bank rules should be used thoughtfully.
Automation can save a tremendous amount of bookkeeping time, but only when the rules behind that automation are correct.
Step 3: Identify Transfers and Credit Card Payments
During catch up bookkeeping, transfers are one of the areas I like to identify early because incorrectly recorded transfers can distort financial reports.
Let’s say you move $8,000 from one business bank account to another.
If the receiving transaction gets categorized as sales income, QuickBooks could report $8,000 more revenue than your business actually generated.
Credit card payments can create a similar problem.
Suppose you use your business credit card to purchase:
- $300 of office supplies
- $500 of advertising
- $200 of software
Those individual credit card purchases total $1,000.
Later, you pay the $1,000 credit card balance from your checking account.
If the individual purchases have already been recorded as expenses, the $1,000 credit card payment generally shouldn’t become another $1,000 of expense.
Otherwise, you could potentially count the same spending twice.
When I’m reviewing uncategorized transactions, transfers and credit card payments deserve special attention for exactly this reason.
Step 4: Review Owner Contributions, Draws, and Distributions
Transactions between a business and its owner are another common source of confusion.
Suppose your business is short on cash and you transfer $3,000 of personal money into the business checking account.
That deposit isn’t automatically business revenue.
Or perhaps you transfer $1,500 from your business checking account to your personal account.
That doesn’t automatically make it a business expense.
Depending on your business structure and circumstances, owner related transactions may need to be recorded as contributions, draws, distributions, loans, or another appropriate equity or liability transaction.
And your business entity matters.
The appropriate treatment for a sole proprietorship may not be the same as for a partnership, S corporation, or C corporation.
Put it on a questions list and research it or discuss it with your bookkeeper or tax professional.
Step 5: Be Careful With Loan Payments
Loan payments are another area where simply choosing an expense category can cause problems.
Imagine your business makes a $1,500 monthly loan payment.
That doesn’t necessarily mean your business had $1,500 of loan expense.
A loan payment may include principal, interest, and potentially other fees.
The principal portion generally reduces the loan balance, while interest may be recorded as an expense.
If the entire payment is categorized incorrectly, you can potentially affect both your Profit & Loss and Balance Sheet.
This is why, during bookkeeping cleanup services, loan statements and supporting documentation can be important.
Instead of guessing based on the description appearing in the bank feed, the transaction can be recorded based on what actually happened.
Step 6: Don’t Blindly Trust QuickBooks Suggestions
QuickBooks Online can make bookkeeping much more efficient.
Suggested categories, bank rules, matching, and automation can all be incredibly useful.
But QuickBooks doesn’t know your business the way you do.
If QuickBooks suggests “Office Supplies,” that doesn’t automatically make Office Supplies the correct category.
I recommend asking one simple question:
What did the business purchase?
Where did the money come from?
Where did it go?
Was this an expense at all?
Was it a transfer?
Was it a loan payment?
Was it an owner transaction?
Was it already recorded somewhere else?
The software can help process the bookkeeping, but it can’t replace understanding the underlying transaction.
That’s where working with an experienced QuickBooks Online bookkeeper can make a significant difference, especially when you’re dealing with months or years of old transactions.
Step 7: Make a Questions List
Eventually, you’re probably going to find transactions you don’t recognize.
Maybe there’s a $184.72 charge from eight months ago with a merchant description you’ve never seen before.
Don’t spend half an hour staring at it.
And don’t guess.
Create a questions list.
For each questionable transaction, note the date, amount, bank description or vendor, account, and what information you need.
Then keep moving.
Later, you can research the questionable transactions using bank statements, receipts, invoices, emails, loan statements, or other records.
This is also how I prefer to approach questions when working on catch up bookkeeping for a client.
Instead of constantly stopping the cleanup process, questionable transactions can be organized so they can be researched and resolved efficiently.
Step 8: Check for Duplicate Transactions
Duplicates can be especially troublesome because they don’t always look obviously wrong.
A transaction may have been manually entered previously and then downloaded through the bank feed.
Or a transaction may have been imported during an earlier attempt to fix the books.
If you simply add everything from the bank feed without checking what is already in QuickBooks, you could potentially duplicate income or expenses.
Before adding hundreds of transactions, check whether some of them already exist in the books.
This is especially important when you’re doing a QuickBooks cleanup after multiple people have worked in the file or after the books have gone untouched for a long period.
Step 9: Reconcile Every Account
This is one of the most important steps in the entire process.
Categorizing transactions is not the same thing as reconciling your books.
Reconciliation compares the transactions and ending balance in QuickBooks with the actual bank or credit card statement.
If your bank statement says the account had $18,742.16 at month end and QuickBooks says $24,891.03, something isn’t right.
There might be a missing transaction.
There might be a duplicate.
A transfer may have been recorded incorrectly.
A transaction could have been changed or deleted.
Or the account may not have been reconciled properly in a previous month.
For a large catch up bookkeeping project, I prefer working through the books systematically and reconciling the accounts month by month.
That way, if something goes wrong, you have a much smaller period to investigate.
Step 10: Review Your Profit & Loss and Balance Sheet
Once the transactions are categorized and the accounts are reconciled, I would review the financial statements.
This is where you move beyond simply “cleaning up QuickBooks” and start asking whether the numbers actually make sense.
Start with the Profit & Loss.
Does the revenue look reasonable based on what you know about the business?
Are any expense categories unusually high?
Are there negative numbers that don’t make sense?
Are major purchases sitting in categories where they don’t belong?
Then look at the Balance Sheet.
Do your bank balances look right?
What about credit cards?
Loans?
Accounts Receivable?
Accounts Payable?
Owner equity?
Are there strange balances sitting in Uncategorized Asset, Uncategorized Income, Uncategorized Expense, or other temporary accounts?
The purpose of bookkeeping cleanup services isn’t simply to create a neat looking QuickBooks file.
It’s to get your books to the point where the financial reports are useful.
What About “Ask My Accountant”?
I understand why this account gets used.
You have 437 transactions.
You’ve made it through 350 of them.
There are 87 left, and you have absolutely no idea what they are.
Putting them all into Ask My Accountant can be tempting.
Sometimes temporarily parking a questionable transaction while you research it is useful.
But it shouldn’t become the permanent home for transactions nobody wants to deal with.
The question still needs to be answered.
Moving an unknown transaction into another account doesn’t make it known.
A proper QuickBooks cleanup means eventually resolving those questionable transactions so that the books accurately reflect the business.
What If You’re Months or Years Behind on Bookkeeping?
This is where catch up bookkeeping becomes especially valuable.
Maybe you aren’t dealing with 437 transactions.
Maybe it’s 1,437.
Maybe you have an entire year or several years of bookkeeping that needs attention.
The same principle applies:
Don’t focus on the total number.
Break the cleanup into smaller pieces.
Review the account structure. Identify recurring transactions. Find transfers. Review credit card payments. Investigate owner transactions and loans. Create a questions list. Check for duplicates. Reconcile each account. Then review the financial statements.
A large bookkeeping mess becomes much less intimidating when there is a process behind the cleanup.
The Goal Isn’t Zero Uncategorized Transactions. It’s Books You Can Trust.
This is the part I want small business owners to remember.
A QuickBooks bank feed showing zero transactions waiting for review doesn’t necessarily mean your bookkeeping is complete.
And it definitely doesn’t guarantee that your books are accurate.
As a bookkeeper, what I want for a business owner is something much more useful:
Financial records you can actually trust.
Accurate bookkeeping can help you understand how your business is performing.
How much revenue are you generating?
Where is your money going?
Are expenses increasing?
Are customers paying you?
How much does the business owe?
Is the company becoming more profitable?
Do you have enough cash to make the next hire, purchase equipment, or invest in growth?
Those are business questions.
And good bookkeeping should help you answer them.
Need Help Cleaning Up QuickBooks Online?
If you’ve opened QuickBooks and found hundreds of uncategorized transactions, months of unreconciled accounts, confusing balances, or financial reports you don’t trust, you don’t have to spend your weekends trying to untangle everything yourself.
At CityScape Bookkeeping, I provide QuickBooks cleanup and catch up bookkeeping services for small business owners who need to get their books back on track.
I can help organize and categorize transactions, reconcile bank and credit card accounts, identify transactions that need clarification, clean up bookkeeping issues, and get your QuickBooks Online records into a much more useful place.
And once you’re caught up, ongoing monthly bookkeeping can help keep you from ending up right back where you started.
Because the goal isn’t simply to get rid of 437 uncategorized transactions.
It’s to know that when you open QuickBooks, you can trust the numbers you’re looking at.