Last updated: October 27, 2026
This one is for the person who actually keeps the books. Often that is not the owner. It is the office manager, the operations lead, or the bookkeeper who inherited a file somebody else set up, and who now has a quiet suspicion that some of the numbers in it are not right.
That suspicion is usually correct, and it is usually not anyone's fault. Books drift. A bank feed rule miscategorizes a vendor for six months. A customer pays twice and nobody notices. The owner swipes the business card at the grocery store in March. None of it is dramatic, and all of it lands on the tax return if it is still there on December 31.
Your books are current. They are just wrong in places. If they are months behind rather than messy, that is a different problem, and our catch-up bookkeeping guide covers it. This checklist is for the set that exists but does not hold up.
The checklist at a glance
These are the six areas where an otherwise current set of books most often goes wrong during the year. Each one has a recognizable symptom you can spot from the reports you already run.
| Area | What to look at | The red flag | Why it matters at tax time |
|---|---|---|---|
| Bank and card reconciliations | Every account, every month | A month that does not tie, or old items still uncleared | Income or expenses are missing or duplicated |
| Uncategorized and suspense accounts | Any holding account | A balance that has been sitting for months | Real income or deductions parked where the return cannot use them |
| Receivables and payables | Aging reports | Invoices that are long overdue or already paid | Income counted twice, or not at all |
| Owner money | Draws, distributions, personal spending | Personal charges in business expense accounts | Deductions that will not hold up, and in an LLC, a liability question |
| Accounts that should be zero | Loans, clearing accounts, payroll and sales tax liabilities | Balances that never clear | The balance sheet stops matching reality |
| Year-end items | Assets, 1099 vendors, accruals | Large purchases expensed, missing W-9s | Treatment decisions that need to be made before the return |
Work through them in that order. The first one makes the other five easier to see.
Start with the bank reconciliations
Everything else in this list depends on this one. If an account is not reconciled, you cannot tell whether a strange number on the P&L is a categorization problem, a missing transaction, or a duplicate.
Reconciled means the book balance agrees with the statement for every account at every month-end, and the reconciliation report shows nothing unexplained. Bank feeds make this feel automatic, which is exactly why it gets skipped. A feed brings transactions in; it does not prove they are all there, or that each one came in only once.
The red flags are specific. Look for a month where the reconciliation was never finished, or a beginning balance that does not equal last month's ending balance (which means someone edited a reconciled period). Checks or deposits that have sat uncleared for months are another sign. So are credit cards treated as an afterthought, even though they often carry more transactions than the bank account does.
Any one of these means the numbers downstream are suspect. Note where they are before you move on.
Clear out the uncategorized and suspense accounts
Most accounting systems give transactions somewhere to wait when nobody is sure where they belong. Depending on the software it might be called Uncategorized Income, Uncategorized Expense, Ask My Accountant, or Suspense. These are fine as a parking spot for a week. They are a problem as a destination.
Run a balance on every one of them. A suspense account with a year-end balance is income or deductions the return cannot use. Uncategorized expenses are deductions nobody is claiming. Uncategorized deposits are worse, because some of them are taxable income and some of them are loans, owner contributions, or transfers between accounts that should never be income at all.
The pattern to look for is size and age. A few small items from last week is normal. A five-figure balance that has been growing since spring means a feed rule is sending something there automatically, and fixing the rule matters as much as fixing the balance.
Make receivables and payables tell the truth
If your books track invoices and bills, the aging reports are where the most expensive quiet errors live.
The classic one is double-counted income. A customer payment arrives through the bank feed and gets recorded as a deposit straight to income, while the original invoice is still sitting open in receivables. The sale is now in the books twice. On the aging report it looks like a customer who has not paid. On the P&L it looks like a better year than you had.
The opposite happens too. Invoices that will never be collected sit in receivables for a year. Bills that were paid by check or card still show as open, so the same expense appears twice or the vendor balance is wrong.
Old receivables also carry a tax wrinkle. Writing off a bad debt works differently on the cash method than on accrual, because you generally cannot deduct income you never reported in the first place. Whether an old receivable gets written off, and how, depends on your accounting method, which our cash vs. accrual guide explains. That is a decision to flag for your CPA, not one to make in the ledger on your own.
Separate owner money from business money
This is the most common problem in small business books and the most sensitive one, because it involves the owner.
Commingling is when business and personal money run through the same accounts. Think of the business card used for groceries, or a supplier paid from a personal card. Owner transfers recorded as expenses count too. It happens in nearly every owner-run business, usually with no bad intent at all.
It matters for two reasons. On the tax side, personal spending booked as a business expense is a deduction that will not survive an examination. On the legal side, for an LLC or a corporation, consistently mixing personal and business funds is one of the factors that can weaken the liability protection the entity exists to provide. That second point is a question for the business's attorney, but the books are where the evidence lives.
What to look for depends on the entity. In a sole proprietorship or single-member LLC, owner draws should sit in equity, not in expenses. In an S corporation, money to the owner has to be separated into salary that ran through payroll and distributions, because the difference has payroll tax consequences. If you see owner payments in an expense account, or no payroll at all for an S corporation owner who takes regular money out, flag it.
Close the accounts that should be zero
Some balance sheet accounts should regularly return to zero, or match a statement from someone else. When they do not, the balance sheet has stopped describing the business.
| Account | What it should match | What drift usually means |
|---|---|---|
| Loans | The lender's statement | Full payments were expensed, with no principal and interest split |
| Closed credit cards | Zero | A card was closed but never zeroed out in the books |
| Clearing and undeposited funds | Near zero | Payments were recorded but never matched to a deposit |
| Payroll liabilities | The payroll provider's records | Tax payments booked as expense instead of clearing the liability |
| Sales tax payable | The returns you filed with the Texas Comptroller | Collections and remittances recorded inconsistently |
The loan line is the one to check first. When an entire loan payment goes to expense, the interest deduction is overstated, the loan balance never moves, and the balance sheet shows debt that has been partly repaid. Sales tax is the Texas-specific one. The liability in your books should line up with what you actually reported and paid to the Comptroller.
The year-end items that need a judgment call
The first five areas are mostly about getting the books right. This last group is different, because the right answer depends on decisions about the tax return. These are the items to identify and bring forward, not resolve alone.
| Item | What to look for | Why it is a judgment call |
|---|---|---|
| Large purchases | Equipment, vehicles, or improvements recorded as ordinary expenses | Whether to capitalize or deduct, and how, changes the year's taxable income |
| Contractor payments | Vendors paid for services with no W-9 on file | 1099-NEC forms are due January 31, and missing information is painful to collect in January |
| Year-end accruals | Bills or income that belong to this year but arrive in January | Only matters on the accrual method, and only if handled consistently |
| Owner compensation | S corporation salary compared with distributions | Reasonable compensation is a tax position, not a bookkeeping entry |
| Prior-year mismatches | This year's opening balances against last year's filed return | If they differ, something changed after the return was filed |
On that last row: opening balances should equal the closing balances on last year's return. When they do not, someone edited a closed period, and that is worth understanding before it carries into another year.
Found more than you expected?
We can work through the reconciliations, holding accounts and owner entries with you, and flag the year-end items before they reach your return.
The Bottom Line
Books that are current can still be wrong, and most of the errors that reach a tax return start small. Reconcile every account first, because it makes everything else visible. Then clear the holding accounts, check that receivables and payables reflect what actually happened, pull owner money out of expenses, and make sure every account that should be zero is. The year-end items in the last table are where bookkeeping meets tax decisions, so treat that list as something to bring to your CPA rather than finish on your own. Finding the problems is the most valuable part. Going into January knowing exactly what is wrong is a far better position than finding out from the return.
