Can You Trust Your Books? A Monthly QuickBooks Health Check

As a business owner, you rely on your financial information to make important decisions. But how do you know that information is reliable?

In Episode 41 of QuickBooks Mastery for Small Business Success, Erica Northrup and Lee Davis discuss what it really means to trust your books.

Listen to Episode 41!

The goal isn’t necessarily to have perfect books. Perfection can be difficult, especially for a busy small business.

The goal is to have a process that gives you confidence that the major pieces are accurate.

Can you answer questions such as:

Are my bank accounts accurate?
Does my Profit and Loss reflect what actually happened in the business?
Do my customers really owe the amount shown in Accounts Receivable?
Do my vendor balances accurately show what I owe?
Do my payroll liabilities make sense?
Are there transactions or accounts nobody can explain?
Can I trust these numbers enough to make a business decision?

If you can’t answer these questions, it may be time for a bookkeeping health check.

Your Books Don’t Have to Be Perfect

One of the most important points from this episode is that your books don’t have to be perfect to be useful.

What matters is having a process for checking the areas that have the greatest impact on your financial statements.

For some businesses, that may mean cleaning up the books before they can truly understand what the numbers are saying.

Once the cleanup is done, the next step is maintaining the books through regular reviews.

A monthly health check can help you catch problems before they become bigger problems.

1. Are All of My Bank Accounts Reconciled?

Start with your bank and credit card accounts.

Ask:

Are all of my accounts reconciled through the most recent statement?

A bank reconciliation compares what QuickBooks says you have with what the bank says you have.

If your bank statement shows one amount and QuickBooks shows another, you want to identify the difference.

Reconciliation can uncover:

Missing transactions
Duplicate transactions
Incorrect amounts
Transactions recorded in the wrong account
Other bookkeeping errors

Don’t simply assume the balance is correct because the bank account is connected to QuickBooks.

Reconcile it.

2. Is Anything Old or Unexplained Sitting in the Bank Feed?

Bank feeds can be helpful, but they shouldn’t become a place where transactions sit indefinitely.

Review transactions that are still waiting in the bank feed.

An old transaction may have been:

Categorized incorrectly
Duplicated
Entered previously but not matched
Left unresolved because nobody knew what to do with it

The longer unexplained transactions sit there, the harder it can become to understand what your books are telling you.

Make reviewing the bank feed part of your regular process.

3. Does Accounts Receivable Represent Money You Actually Expect to Collect?

Accounts Receivable represents money your customers owe you.

But the balance in QuickBooks isn’t automatically a guarantee that you’ll collect all of it.

Look at your Accounts Receivable Aging report.

Ask:

Who owes us money?
How long have they owed it?
Are these customers still active?
Are there old balances we don’t understand?
Are there amounts we realistically expect to collect?

An old balance can make your Accounts Receivable look larger than the amount you are actually likely to collect.

If your books say customers owe you $50,000, but a significant portion of that balance is several years old and unlikely to be collected, the report isn’t telling the full story.

Your books should help you understand reality, not just display numbers.

4. Does Accounts Payable Really Represent What We Owe?

The same principle applies to Accounts Payable.

Ask:

Does Accounts Payable accurately represent what the business currently owes?

Look for old balances.

If a bill has been sitting in Accounts Payable for months or years, determine why.

Is it still owed?

Was it already paid?

Was it entered twice?

Was there a mistake in how the payment was recorded?

Old Accounts Payable balances can distort your understanding of your obligations and cash needs.

5. Do My Payroll Liabilities Make Sense?

Payroll is another area that deserves regular attention.

Payroll doesn’t simply create an expense. It can also create liabilities that the business needs to pay.

Review your payroll liability balances at month-end.

Ask:

Are there old payroll liabilities sitting on the books?
Do the balances make sense?
Were payroll taxes and other liabilities actually paid?
Are there amounts that nobody can explain?

If old liabilities continue accumulating, don’t ignore them.

They may indicate that payroll was recorded incorrectly or that payments were not properly connected to the liabilities.

6. Is There Anything Unusual on the Balance Sheet?

Your Balance Sheet can reveal problems that aren’t obvious when you’re only looking at your bank account.

Review it for unusual items such as:

Negative balances
Very old balances
Accounts you don’t recognize
Accounts nobody can explain
Unexpected asset or liability balances

A Balance Sheet should tell a logical story about what the business owns, what it owes, and the owner’s equity.

If something looks strange, investigate it.

7. Does My Profit and Loss Make Sense?

Next, look at the Profit and Loss.

Don’t just look at whether the business made money.

Ask whether the numbers make sense based on what actually happened during the period.

For example:

Does the income look reasonable?
Did sales increase or decrease as expected?
Are expenses consistent with business activity?
Are there unusual changes?
Did any expense category suddenly increase?

You know your business.

Your Profit and Loss should generally reflect what you experienced.

If something doesn’t make sense, that’s a reason to investigate—not simply accept the report.

8. What Expenses or Costs Have Increased?

Comparing your current numbers with historical information can reveal changes that aren’t obvious when looking at one month by itself.

Compare this year to last year.

Look for expenses and costs that have increased significantly.

A change may have a perfectly reasonable explanation. Perhaps you hired an employee, expanded, purchased equipment, or experienced higher material costs.

But you want to know why the number changed.

This is where accurate historical QuickBooks data becomes especially valuable.

9. Are There Mystery Accounts or Transactions?

Every business eventually encounters transactions that don’t immediately make sense.

But mystery transactions shouldn’t remain mysteries forever.

Look for items such as:

Unapplied income
Unapplied payments
Uncategorized transactions
Accounts nobody recognizes
Old balances without an explanation

If nobody can explain a transaction, don’t simply leave it sitting there.

Find out what happened.

A small unexplained item may not have a major impact. But a pattern of unexplained transactions can indicate a larger bookkeeping problem.

10. Do I Trust These Numbers Enough to Make a Business Decision?

This may be the most important question of all.

Do I trust these numbers enough to make a business decision?

Can you use your financial statements to determine:

Whether the business is profitable?
Whether sales are improving?
Whether expenses are increasing?
Whether you can afford to hire?
Whether you have enough cash?
Whether pricing needs to change?
How the business is performing compared with previous periods?

If you don’t trust your numbers, you’re forced to make decisions based on guesswork.

That defeats one of the biggest benefits of using QuickBooks.

Don’t Forget Personal Transactions

Another important part of reviewing your books is checking for personal transactions.

Personal and business expenses should not be mixed together.

Review transactions to make sure personal purchases aren’t being recorded as business expenses.

This is particularly important because incorrectly categorized personal expenses can distort your Profit and Loss and make the business appear more or less profitable than it really is.

Review Loan Payments

Loan payments also deserve attention.

A loan payment isn’t necessarily one expense.

Typically, part of a payment goes toward principal, while another portion goes toward interest.

The principal reduces the loan liability, while the interest is an expense.

If the entire payment is recorded incorrectly, both the Profit and Loss and Balance Sheet can be affected.

Review loan balances and payments regularly to make sure they make sense.

Don’t Ignore Cash Transactions

Cash transactions can be easy to overlook, especially when a business uses both bank and cash activity.

Make sure cash transactions are recorded appropriately and that the balances make sense.

If cash is being withdrawn, spent, or deposited without being properly recorded, your books can quickly become difficult to understand.

Build a Monthly Habit

Trusting your books isn’t about looking at QuickBooks once a year when your tax return is due.

It’s about developing a regular habit.

At the end of each month, take time to review the major pieces:

Bank accounts → Bank feed → Accounts Receivable → Accounts Payable → Payroll liabilities → Balance Sheet → Profit and Loss → Expense changes → Mystery transactions → Business decisions

This doesn’t have to take hours every month once the process is established.

The important thing is consistency.

What If Your Books Aren’t Reliable?

If you go through this health check and find problems, don’t panic.

You may need to clean up your books before you can rely on the financial statements.

Start with the biggest issues.

Reconcile the bank accounts. Investigate old receivables and payables. Review payroll liabilities. Look at unusual Balance Sheet accounts. Clean up unexplained transactions. Make sure personal expenses aren’t mixed with business expenses.

You don’t have to fix everything at once.

Take small steps toward accurate books.

And if you find yourself in deeper waters, getting help can save time and prevent additional problems.

Trust Your Numbers Before You Act on Them

QuickBooks is a tool for understanding your business, but the software can’t tell you whether every number makes sense.

That requires a process.

A monthly health check helps you move beyond simply entering transactions and toward actually understanding your financial information.

Your books don’t have to be perfect.

They need to be reliable enough to tell you the truth about your business.

When your bank accounts reconcile, your receivables and payables make sense, your payroll liabilities are accurate, your Balance Sheet is logical, and your Profit and Loss reflects what actually happened, you can have greater confidence in your decisions.

And that’s ultimately what trustworthy books are about:

Knowing your numbers well enough to use them.

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Payroll Is More Than One Expense in QuickBooks

In Episode 39 of QuickBooks Mastery for Small Business Success, Erica Northrup and Lee Davis discuss an area of QuickBooks that can easily become confusing for business owners: payroll.

Payroll may look like one large expense when money leaves your bank account, but that’s not actually how payroll works from an accounting perspective.

Payroll is not one transaction.

It involves multiple expenses, liabilities, and accounts—and understanding the difference is essential if you want your financial statements to accurately reflect what your business is spending.

Listen to Episode 39!

Payroll Is Not Just Payroll Expense

One of the biggest misconceptions about payroll is that the entire amount that leaves your bank account should be categorized as a payroll expense.

That’s not correct.

Some of the money associated with payroll represents actual expenses, while other amounts are liabilities that the business is responsible for paying to government agencies, employees, or retirement plans.

If you want to understand how much your business is actually spending on payroll, you need to look at the breakdown.

Payroll Involves Multiple Accounts

Depending on your business and payroll setup, payroll can involve several different accounts.

These may include:

Wage expense
Payroll tax expense
Federal payroll liabilities
State payroll liabilities
State and federal unemployment liabilities
Medicare liabilities
Social Security liabilities
Retirement contributions

Each of these accounts has a different purpose.

That’s why simply looking at the amount that came out of your bank account doesn’t necessarily tell you how much payroll actually cost your business.

Why Do Payroll Liabilities Matter?

Payroll liabilities represent money that your business has collected or owes but has not yet paid to the appropriate party.

For example, payroll may include amounts withheld from an employee’s paycheck that need to be sent to the government.

Those amounts aren’t additional business expenses.

They are liabilities.

Eventually, when those liabilities are paid, the liability account should be reduced.

This distinction is important because incorrectly categorizing payroll can make your Profit & Loss and Balance Sheet inaccurate.

Two Payroll Reports That Can Help

QuickBooks provides payroll reports that can help business owners understand what is happening with payroll.

Payroll Register

The Payroll Register provides information about employee wages, including gross wages.

It can help you verify what employees were paid.

Payroll Summary

The Payroll Summary provides a broader breakdown of payroll information and can help you understand the different payroll expenses and liabilities involved.

These reports give you more information than simply looking at the amount that left your bank account.

A Common Problem: Too Much Payroll Expense

One of the problems Lee and Erica see is businesses overstating their payroll expense while understating their payroll liabilities.

This can happen when the entire payroll transaction is recorded as an expense.

The result is a financial statement that doesn’t accurately reflect what’s happening in the business.

If you suspect this is happening in your QuickBooks file, go back to your payroll records and compare them with the way the transactions are being recorded.

The goal is to make sure the payroll information is flowing into the correct accounts.

Warning Signs Your Payroll Needs Attention

There are several red flags that can indicate a payroll accounting problem.

1. The Entire Payroll Is Classified as an Expense

If every dollar associated with payroll is being recorded as an expense, it’s worth taking a closer look.

Some portions of payroll may belong in liability accounts rather than expense accounts.

2. Payroll Liabilities Keep Growing

If your payroll liability accounts continue to grow month after month, you need to find out why.

Liabilities should generally be paid down as the associated obligations are remitted.

A growing balance that no one can explain is a warning sign.

3. Old Payroll Liabilities Can’t Be Explained

Look at the age of your payroll liabilities.

If you have old balances sitting in your accounts and nobody knows what they represent, it’s time to investigate.

Don’t simply ignore them because the numbers are on the Balance Sheet.

4. Multiple Wage Accounts Serve the Same Purpose

Another warning sign is having multiple wage accounts that essentially represent the same thing.

Too many duplicate or unnecessary accounts can make your financial statements confusing and make it harder to understand your true payroll costs.

5. Retirement Payments Don’t Reduce the Retirement Liability

If your business makes retirement plan contributions but the corresponding retirement liability isn’t being reduced, something may not be recorded correctly.

The liability should reflect what the business actually owes.

When the payment is made, the liability should be properly accounted for.

6. Payroll Reconciles to the Bank—but the Financial Statements Don’t Make Sense

This is an especially important warning sign.

You might reconcile your bank account and see that everything appears to match.

But that doesn’t necessarily mean your payroll accounting is correct.

Your financial statements also need to make sense.

A transaction can match the bank and still be categorized incorrectly.

Payroll Affects Both Major Financial Statements

Payroll accounting affects both the Profit & Loss Statement and the Balance Sheet.

The Profit & Loss needs to accurately show the expenses associated with payroll.

The Balance Sheet needs to accurately show outstanding payroll liabilities.

If either side is wrong, your overall financial picture can be misleading.

That’s why business owners shouldn’t stop at asking:

“Did the payroll clear the bank?”

A better question is:

“Was the payroll recorded correctly?”

How Do You Know What Your Payroll Is Really Costing?

If you want to understand your true payroll costs, don’t simply look at the bank account.

Review your payroll reports.

Look at:

Gross wages
Employer payroll taxes
Employee withholdings
Payroll liabilities
Retirement contributions
Other payroll-related costs

Then compare those figures to what’s appearing in your financial statements.

This gives you a much clearer picture of what your employees actually cost the business.

Payroll Should Be Reviewed Regularly

Payroll is one of the largest expenses for many businesses.

That makes it especially important to review it regularly.

Don’t wait until tax time to discover that your payroll liabilities have been sitting on your Balance Sheet for months or that your Profit & Loss doesn’t accurately reflect your payroll costs.

A regular review can help you catch problems while they’re still relatively easy to correct.

Final Thoughts

Payroll can be complicated because it involves much more than wages.

There are expenses, liabilities, taxes, withholdings, retirement contributions, and payments that all need to be recorded correctly.

The key takeaway from Episode 39 is simple:

Payroll is not one transaction.

If your entire payroll is being treated as an expense, if liabilities are growing without explanation, or if your payroll numbers don’t make sense on your financial statements, it’s time to take a closer look.

Use your Payroll Register and Payroll Summary to understand the details. Reconcile your accounts, review your liabilities, and make sure the information on your Profit & Loss and Balance Sheet tells the right story.

And if you aren’t sure what you’re looking at, don’t guess. Getting help from someone who understands both payroll and QuickBooks can save you from much bigger cleanup problems later.

Accurate payroll accounting isn’t just about getting the numbers into QuickBooks. It’s about knowing what those numbers mean—and making sure they accurately represent your business.

If you liked the podcast, you will like our training course. Click on the link below to join our upcoming course.

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What to Do When Your QuickBooks Are a Mess

In Episode 33 of QuickBooks Mastery for Small Business Success, Erica Northrup and Lee Davis tackle a challenge many business owners eventually face: What should you do when your QuickBooks are a mess?

Listen to Episode 33!

Whether you’ve fallen behind on bookkeeping, inherited disorganized records, or simply aren’t confident that your financial reports are accurate, you’re not alone. The good news is that messy books can be cleaned up with the right process—and the experience can become an opportunity to improve your financial systems moving forward.

When Do Business Owners Realize There’s a Problem?

For many entrepreneurs, bookkeeping isn’t top of mind until someone else needs their financial information.

A common trigger is applying for financing.

Banks typically request financial reports such as:

Profit & Loss Statement
Balance Sheet

An Excel spreadsheet or a rough estimate usually isn’t enough. Lenders want accurate, professional financial reports that reflect the true financial condition of the business.

For many owners, that’s the moment they discover their QuickBooks records need attention.

You’re Not Alone

One of the first points Erica and Lee emphasize is simple but reassuring:

Don’t panic.

Many successful business owners have experienced bookkeeping problems at some point.

Falling behind doesn’t mean your business is failing—it simply means it’s time to develop a plan for getting your financial records back on track.

Start at the Beginning

When cleaning up QuickBooks, it’s tempting to jump directly into fixing individual transactions.

Instead, Lee recommends starting with the foundation.

In some situations, rebuilding accurate beginning balances through journal entries may be necessary before moving forward.

Having a solid starting point makes every step that follows much easier.

Review Your Chart of Accounts

The first place to evaluate is your Chart of Accounts.

A poorly designed chart of accounts creates problems throughout QuickBooks because every transaction depends on the categories established there.

Signs of trouble often appear on your:

Balance Sheet
Profit & Loss Statement

If accounts are missing, duplicated, or categorized incorrectly, your reports will not provide reliable information.

Taking time to organize your chart of accounts creates a stronger foundation for accurate bookkeeping.

Use Forms and Lists Correctly

Once the Chart of Accounts has been reviewed, the next step is making sure transactions are being entered using the proper QuickBooks forms.

Using the correct forms helps ensure that invoices, bills, payments, expenses, and deposits all flow correctly through the accounting system.

Accurate workflows reduce duplicate entries and produce more reliable financial reports.

Work With Your Accountant

Cleaning up QuickBooks doesn’t have to be a solo project.

Your accountant can often provide valuable information that serves as a starting point for rebuilding your books.

Helpful documents may include:

Fixed asset schedules
Depreciation schedules
Trial balances
Prior-year financial statements

These records provide important reference points and help ensure your cleanup begins with accurate information.

Gather Your Financial Documents

Once you’ve established a starting point, gather the documents needed to rebuild your records.

Important documents include:

Bank statements
Credit card statements
Loan statements
Equipment purchase information
Accounts receivable records

Having complete documentation makes it much easier to verify transactions and identify missing information.

Understand How You Get Paid

Another important part of the cleanup process is understanding how owner compensation should be recorded.

For many LLCs and sole proprietorships, owner compensation is recorded through Owner Draw, not payroll.

Recording owner payments correctly helps ensure both your Profit & Loss Statement and Balance Sheet accurately reflect the financial position of the business.

Should You Start Over?

Many frustrated business owners wonder whether it would be easier to create a brand-new QuickBooks company file.

According to Lee, the answer depends on your situation.

For businesses using QuickBooks Payroll, starting over may not be practical because payroll records are integrated into your accounting system and often need to remain intact.

In many cases, cleaning up the existing file is the better long-term solution.

Turn Cleanup Into a Learning Opportunity

One of the most valuable insights from this episode is that cleaning up your books shouldn’t simply fix past mistakes—it should prevent future ones.

Many bookkeeping problems happen because business owners were never taught how to use QuickBooks correctly.

As you clean up your records, take time to understand:

Why mistakes occurred
Which workflows need improvement
How transactions should be entered moving forward

Treating the cleanup process as training helps build confidence and reduces the likelihood of repeating the same errors.

Final Thoughts

Messy QuickBooks files can feel overwhelming, but they are fixable.

By starting with a solid foundation, organizing your Chart of Accounts, gathering the right financial documents, and working with trusted professionals when needed, you can rebuild confidence in your financial records.

Most importantly, don’t view bookkeeping cleanup as simply correcting the past. View it as an investment in the future of your business. The systems and knowledge you gain today will help you produce more accurate reports, make better business decisions, and avoid the same problems down the road.

As Erica Northrup and Lee Davis remind listeners throughout QuickBooks Mastery for Small Business Success, organized books aren’t just about compliance—they’re about creating clarity, confidence, and a stronger business.

How QuickBooks Turns Everyday Transactions into Meaningful Financial Reports

In Episode 28 of QuickBooks Mastery for Small Business Success, Lee Davis and Erica Northrup explain how every transaction entered into QuickBooks ultimately becomes part of your financial reports.

For many business owners, reports like the Profit & Loss Statement and Balance Sheet seem to appear automatically. However, those reports are only as accurate as the transactions and categories behind them.

Understanding how QuickBooks builds your reports can help you identify mistakes before they become costly problems.

Quickbooks Mastery for Small Business Success

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It All Begins with the Chart of Accounts

Every financial report in QuickBooks starts with your Chart of Accounts.

When you first create a QuickBooks company file, the software includes several standard accounts. From there, you should customize the chart of accounts to fit your business.

Erica and Lee recommend starting with the basics and then adding industry-specific accounts as needed. One helpful guide is your Schedule C, which can help organize income and expense categories appropriately.

The chart of accounts is the foundation of your bookkeeping. Every transaction you enter is assigned to one of these categories, and those categories determine where information appears on your financial statements.

Income Categories Matter

Income is more than just one number.

Many businesses have multiple sources of revenue, such as:

Product sales
Service income
Other revenue streams

Creating appropriate income categories allows you to understand exactly where your revenue is coming from and which parts of your business are the most profitable.

Cost of Goods Sold Helps You Price Correctly

Another critical category is Cost of Goods Sold (COGS).

This includes the direct costs associated with producing your products or delivering your services, such as materials and direct labor.

Tracking COGS accurately allows you to:

Calculate gross profit
Understand profit margins
Set profitable pricing

Without accurate Cost of Goods Sold, it’s difficult to know whether your business is truly making money.

What Appears on the Balance Sheet?

Unlike the Profit & Loss Statement, which measures performance over a period of time, the Balance Sheet provides a snapshot of your business at a specific moment.

The Balance Sheet includes:

Assets
Liabilities
Owner Equity

Together, these categories show what your business owns, what it owes, and what belongs to the owner.

Correct Amount, Wrong Category = Wrong Report

One of the most important lessons from this episode is that accuracy isn’t just about entering the correct dollar amount.

If a transaction is placed in the wrong category, your financial reports will still be wrong.

For example, a payment recorded as an expense instead of a liability may have the correct amount, but it produces misleading financial statements.

Proper categorization is just as important as entering the transaction itself.

Loan Payments Require Special Attention

Loan payments are a common source of bookkeeping mistakes.

Many business owners record the entire payment as an expense.

In reality, a loan payment typically includes:

Principal
Interest

Only the interest portion is generally deductible as a business expense.

The principal reduces the loan balance, which appears on the Balance Sheet.

Failing to separate these amounts can affect both your financial reports and your tax deductions.

Owner Draw Is Not an Expense

For LLC owners, compensation is often taken through an Owner Draw.

An Owner Draw:

Reduces owner equity
Does not appear as a business expense
Is not tax deductible as an operating expense

Misclassifying Owner Draw as an expense can significantly distort your Profit & Loss Statement.

Equipment Belongs on the Balance Sheet

Large equipment purchases should generally be recorded as assets.

Rather than immediately becoming an expense, equipment appears on the Balance Sheet and is typically depreciated over time.

Recording equipment correctly provides a more accurate picture of both your assets and your long-term financial position.

What Builds the Profit & Loss Statement?

Your Profit & Loss Statement is built from the daily transactions you enter into QuickBooks.

These include:

Invoices
Sales Receipts
Bills
Expense forms
Payroll costs
Credit card transactions

Together, these transactions produce the information used to calculate:

Income
Cost of Goods Sold
Expenses
Net Profit

This is why accurate data entry is so important.

What Affects the Balance Sheet?

Several everyday transactions contribute directly to your Balance Sheet, including:

Bank account balances
Credit cards
Loans
Accounts Receivable
Owner Equity
Owner Draw

These accounts work together to provide a snapshot of your company’s financial health at a specific point in time.

Your Balance Sheet Can Reveal Hidden Problems

Many business owners focus primarily on the Profit & Loss Statement.

However, Erica and Lee point out that the Balance Sheet often reveals issues that aren’t immediately visible elsewhere.

Unexpected balances in loans, accounts receivable, owner equity, or bank accounts can indicate bookkeeping errors that need attention.

Reviewing both reports together provides a more complete picture of your business.

Watch Out for Bank Feed Errors

While the QuickBooks Bank Feed can save time, it isn’t perfect.

QuickBooks may recommend categories that are incorrect for your business.

Automatically accepting those recommendations without reviewing them can lead to inaccurate financial reports.

Automation should support your bookkeeping—not replace careful review.

How to Verify Your Reports

To ensure your reports are accurate, Erica and Lee recommend a few simple habits:

Reconcile your accounts regularly.
Review large or unusual transactions.
Verify that transactions are categorized correctly.
Compare your reports month over month to identify unexpected changes.

Regular review helps catch small mistakes before they become major accounting problems.

Final Thoughts

QuickBooks doesn’t create financial reports out of thin air. Every report is built from the transactions you enter and the categories you assign.

By maintaining a well-organized Chart of Accounts, categorizing transactions correctly, and reviewing your reports consistently, you’ll gain financial information you can trust.

As Lee Davis and Erica Northrup emphasize throughout QuickBooks Mastery for Small Business Success, understanding how QuickBooks transforms daily transactions into financial reports empowers business owners to make better decisions, avoid costly mistakes, and build stronger businesses.

Fix this First in QuickBooks

What Should You Fix First in QuickBooks?

In this episode of QuickBooks Mastery for Small Business Success, Lee Davis and Erica Northrup discuss one of the most common questions business owners ask when their books feel messy or overwhelming:

Where do I even begin?

When bookkeeping problems start piling up, it’s easy to feel stuck. But according to Erica and Lee, the best place to start is often the issue that’s causing the most stress or uncertainty.

Listen!

Start With What Feels Wrong

Many business owners first notice a problem when something obvious doesn’t look right—such as a checking account balance in the chart of accounts that seems completely off.

That discomfort is usually a signal that something needs attention.

Rather than ignoring it, start there.

Why Google Isn’t Always the Best Solution

When bookkeeping issues arise, many business owners immediately search online for answers.

While online resources can sometimes help, QuickBooks problems are often tied to the specific way your books were set up. Generic advice may not fully solve the issue—and in some cases can make things more confusing.

The key is understanding the why behind the problem, not just applying a quick fix.

1. Start With the Chart of Accounts

According to Erica and Lee, one of the first places to review is the Chart of Accounts.

If the structure of your accounts is incorrect, everything connected to those accounts can become inaccurate as well.

Common issues include:

Accounts classified incorrectly
Too many unnecessary accounts
Accounts that don’t fit the business properly

One practical tip is to use your Schedule C as a guide when cleaning up your chart of accounts.

Most importantly, your chart of accounts should be customized to your specific business—not copied from someone else’s setup.

2. Review the Bank Feed

The bank feed is another area where problems often begin.

Common mistakes include:

Duplicate transactions
Incorrect account assignments
Automatically accepting suggested categories without review

While automation can save time, it still requires oversight and accuracy checks.

3. Check Your Reconciliation

Reconciliation issues are another major source of frustration.

Often there are:

Transactions sitting unreconciled
Duplicate entries
Missing or incorrect transactions

When reconciliations are inaccurate, your reports become unreliable.

Reviewing and cleaning up reconciliation discrepancies can significantly improve confidence in your books.

4. Improve Categorization

Categorization mistakes can affect nearly every financial report in QuickBooks.

Erica and Lee recommend:

Using bank statements to verify transactions
Matching entries carefully
Categorizing transactions intentionally

One important reminder:
Don’t automatically trust QuickBooks’ suggested categories.

When setting up products and services, it’s also essential to connect them to the correct income accounts so sales are recorded properly.

How Do You Know the Cleanup Is Working?

Bookkeeping cleanup can feel overwhelming, so it’s important to recognize progress along the way.

According to Erica and Lee, once that first major issue is resolved, you’ll often feel like you’re finally moving in the right direction.

A good way to measure success is by reviewing:

Your Profit & Loss Statement
Your Balance Sheet

When those reports begin making sense and reflecting reality more accurately, you know the cleanup process is working.

Final Thoughts

Fixing your book is crucial to gaining control of your business. Lee has been in the business of cleaning up messy book for over 10 years, and entrepreneurs usually have similar problems.

You could hear it in the tone of his voice during the podcast – this is old hat to him. He has looked at enough books to instantly spot the problems. If you are needing help, don’t hesitate to reach out.

If you liked the podcast, you will like our training course. Click on the link below to join our upcoming course.