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This is a fairly common problem, especially if the company you are dealing with is a small yet rapidly growing business. In short, there really aren’t any accounting records, there are just source documents. Or, someone might have tried to keep the books, but they had no idea what they were doing, so the accounting records are incredibly bad. 1. Stop the fireSo, the first step is to stop the damage from occurring from this point forward. That means routing all of the new, incoming source documents through a reliable bookkeeping system. This presents a bunch of problems. First, is the original bookkeeper still going to be involved? That might be bad because the person clearly hasn’t demonstrated any ability to keep the books so far. This is going to be a judgment call. If the person is clearly incompetent, then remove him from the accounting operation immediately. If the person simply didn’t have any training, then it may be possible to correct his behavior. It is vital to record all transactions as they happen. Daily proper bookkeeping will limit the problems as the mess will not stack up any further. 2. Take Control of the Source DocumentsThe next issue is taking over control of the source documents. Make sure that all supplier invoices and employee expense reports are being routed straight to you. The same goes for payroll records and customer billings. It’s impossible to keep the books if the paperwork is scattered all over the company. 3. Reconcile the bank statementsProbably the most important step in getting your books in order is reconciling your bank statements. All this is to achieve the right strategic layout and balance the financial situation. You need to reconcile your business accounts with the actual expenditures and expenses to get the business on track. Bank reconciliation requires disciplinary action. Many business owners get lost here because they make things pile up. Reconciling your transactions is like washing the dishes. If you spend a little time every day, it’s no big deal. But if you let them pile up, now you are really a mess.There’s really no reason to use a bookkeeping system if you’re not going to keep up with it. Schedule an appointment with yourself once a month to reconcile your bank statements and set your budget for the coming month. You should also check in weekly to code your transactions 4. Clean up Chart of AccountsStart with the most important accounts. Check the account details to see if the records are entered in a logical manner. The data entry process often assumes significant manual processes that inevitably cause data entry errors. The common issues are duplicate entries or transactions with extra zeros. Once you will have confidence in the most high-impact accounts you may proceed with smaller ones. 5. Complete Financial Statements and perform a top-down analysisDigging into the books on the General Ledger level often drives attention away from the ultimate goal, which is sensible and solid-looking financials. Once you will reach a preliminary financial statement the next thing to do is to give it a bird’s eye view and see if there are noticeable inconsistencies or balances that make no sense. This can include low depreciation amount that is accumulated on relatively high fixed assets or negative Account Payables that are usually caused by bills that were not recorded previously while the payments to vendors were executed on the bank statement. A high-level view of the financials is always the best approach for correcting messy books. Conclusion Dealing with messy accounting is Overwhelming as keeping your books in line can be time-consuming. The best scenario is to find someone who can set up for you, integrate the system, reconcile your accounts regularly, and send you financial reports. Sometimes, you’re too busy for an accounting clean-up. Or, you may not know what you can do to fix them. An accounting professional can help you unravel and clean up accounting records. Hiring an accountant can help: Free up your time, improve the accuracy of your books, give you peace of mind and fix accounting mistakes․ Nare Khachatryan Business Analyst at Hundred MS

You might have learned the terms Cash-Basis and Accrual-Basis on various occasions and might be wondering what those terms mean and how the two accounting treatments affect businesses and decision-making. Below is the summary of the definitions, applications, and key pros and cons of both methods. Cash-Bases The most straightforward advantage of the cash-basis approach is its simplicity. In this treatment, the revenue is recognized when the cash is collected, and expenses are recognized when the cash is paid. Under the cash basis, there is no need to account for customer sales made on credit (i.e. accounts receivable) until they pay. Similarly, no bookkeeping is required for purchases from vendors on credit (i.e. accounts payable or accrued expenses) until the company pays for them. Cash-basis accounting is a simple way to easily see a company’s cash status. Many businesses prefer to use cash accounting because the financial statements closely reflect their cash position, which is especially important for small business owners. The simplicity also makes bookkeeping easier and cheaper. And under cash-basis accounting, a business doesn’t have to pay taxes on cash it hasn’t collected. The main disadvantage of the Cash-Basis is that financial reports may not represent reality at a given point. For example, a business may make a sale in 2019 but expects to be paid for it only in 2020. In this case, the revenue is recorded in 2020 when the transfer of the ownership of the assets occurred in 2019. This would distort the picture as in 2019 company would report no sales. Another disadvantage is that Cash accounting mostly follows a single-entry system while Accrual accounting follows a double-entry system. Another limitation is that under IRS rules Businesses with more than $25 million in gross revenues can not run the books on Cash-Basis, hence, the method is limited to small businesses. Accrual-Basis The Accrual method is considered to better match revenues and expenses and standardizes reporting information for comparability purposes. Accrual accounting bookkeeping is uncoupled from when the money involved actually changes hands, thereby smoothing the impact of timing and yielding a more accurate overall picture of business’ operations. Rooted in the concept of the matching principle, where revenues and expenses are recognized in the period in which the transaction occurs and not when cash exchanges hands, accrual basis accounting provides more timely insights for analysts and investors. However, accrual basis accounting relies on estimates and assumptions from management, providing management with the opportunity to manipulate the appearance of its financial performance. The accrual component of a company’s earnings is commonly less persistent over time. When making comparisons of companies, generally those with a higher proportion of accrual-based earnings are considered to have weaker earnings than those with a higher proportion of cash flow-based earnings. Another disadvantage of accrual accounting is the additional bookkeeping. Rather than just looking at cash coming in and out, businesses using accrual accounting monitor receivables, prepaid expenses, accounts payable, and other accrued liabilities. It also requires more frequent closing of the company’s books. Another disadvantage is that the accrual basis might obscure short-term cash flow issues in a company that looks profitable on paper. Conclusion The accrual basis of accounting is the gold standard because it gives a more accurate representation of a company’s finances. Cash-basis accounting might be right for your business if you rely on cash payments for revenue and expenses. Conversely, businesses that extend credit to customers or use credit with their suppliers tend to find that accrual accounting gives a better picture of overall financial health. Businesses that hold large amounts of inventory also benefit from accrual accounting. In general, the greater the lag in conversion to cash from sales, the stronger the argument for accrual-based accounting. Nare Khachatryan Business Analyst at Hundred MS