Cleanup vs. Reconstruction

“Clean up the books” can mean a few miscoded months or years of activity nobody can explain. Those are different jobs, and the first thing I figure out with any file is which one I’m looking at.

What cleanup fixes

Cleanup assumes the structure is sound. The chart of accounts fits, the opening balances were supported, and the problems came from normal use:

• Transactions coded to the wrong account
• A few months of unreconciled bank or card accounts
• Duplicates from a bank feed matched twice
• Undeposited funds never applied to a deposit
• A loan payment recorded entirely to expense

Each has a specific fix. A cleanup like that takes days or weeks.

When it’s reconstruction

Some problems are in the foundation. Opening balances were typed in without support. Three people used three different ideas of the chart of accounts. A migration brought the transactions over but not the balances. Personal spending ran through the business for years.

Fixing transactions won’t get you to the truth there, because the balances they sit in were never true. Forcing a balance with an adjusting entry just moves the problem somewhere else. Reconstruction starts from the statements, invoices, payroll records, and prior returns, and rebuilds each period until every balance can be supported and every change is documented.

How to tell which you need

• Can you explain every balance on the balance sheet?
• Were the opening balances ever supported?
• How many periods are affected? A few months is cleanup. Errors carried through prior tax years are reconstruction.
• Has anyone outside the business relied on these numbers? Then the correction has to be traceable.

A lot of files need both. That’s what the assessment is for. I’d rather sort it out before the work starts than halfway through.