Check your own books against 25 things that go wrong.
This is a working sheet, not a quiz. Open your profit and loss, balance sheet and general ledger in another tab, go down the list, and mark each one found, fine, or cannot tell. It shows you where to look, what the innocent explanation usually is, and what it costs you if the innocent explanation does not hold.
It will not tell you your books are correct. No checklist can, and one that claimed to would be worth less than this one. It tells you what you have ruled out and what you have not.
Three answers, and one of them is the honest one more often than people expect
Found it means you saw it and the innocent explanations underneath the check do not apply. Looked, fine means you checked and it is genuinely clean. Cannot tell means you could not settle it from what you have in front of you.
Cannot tell never counts against you. It reduces how much of your books this sheet has actually seen, which is a different thing from a problem, and treating it as a failure would push everyone into guessing. Leaving a check unanswered has exactly the same effect, so stopping halfway is a legitimate way to finish.
The overall band is withheld until at least 60% of the checks that apply to you have been evidenced one way or the other, because a flattering number off three checks is the part people quote. A confirmed critical finding caps the grade no matter what the rest of the sheet says, so a misstated balance sheet cannot hide behind a tidy chart of accounts.
| Area | Weight | Checks |
|---|---|---|
| Transaction categorization | 25% | 5 |
| Reconciliation | 20% | 5 |
| Chart of accounts | 15% | 3 |
| Revenue and liabilities | 15% | 5 |
| Tax readiness | 15% | 3 |
| Consistency and timeliness | 10% | 4 |
Narrow the list to your business
Optional, and every field defaults to not sure. Answering only takes checks away, never adds them, and not sure keeps a check in rather than dropping it quietly. A cash-basis business with no payroll correctly gets a shorter list than a funded startup.
25 of 25 checks apply to you.
Transaction categorization
25% of the score, 5 checks here.
Uncategorized or 'Ask My Accountant' is carrying real money
Transactions the bookkeeper could not identify were parked rather than resolved, and nobody came back to them.
If real. Every parked transaction is a number the profit and loss is wrong by, and a preparer will either guess or bill to chase it.
Where to look, and what to rule out first
Where to look
- Profit and loss, and the balance sheet: any account named Uncategorized Income, Uncategorized Expense, Ask My Accountant, or Miscellaneous.
- Count the transactions and total the balance over the last 90 days. Both numbers matter; a large count of small items is a different problem from one large unknown.
Rule out first
- The current month in progress will always have some unresolved items.
- A genuinely miscellaneous account with immaterial amounts is normal. Judge it against the size of the business, not against zero.
How it gets fixed
Work the list oldest first, ask the owner only about the ones that genuinely cannot be identified from the source, and set rules so they stop recurring.
Owner draws or distributions are booked as business expenses
Money the owner took out of the business appears in the profit and loss, so profit looks lower than it is.
If real. Profit is understated, the tax return is wrong, and the basis and equity picture is wrong at the same time.
Where to look, and what to rule out first
Where to look
- General ledger: transfers to a personal account, or card spend that looks personal, landing in an expense account.
- Balance sheet, equity: whether a draws or distributions account exists at all. If it does not, that is a strong signal.
Rule out first
- An owner on payroll is correctly an expense. Distinguish payroll from draws before flagging.
- A genuine business expense the owner paid personally and was reimbursed for is an expense. The direction of the money matters.
- Some businesses run legitimate owner reimbursements that look like draws in the bank feed.
How it gets fixed
Reclassify draws to equity, split anything genuinely mixed, and set a rule so the pattern stops.
Transfers between accounts are booked as income or expense
Moving money from checking to savings, or paying a card from the bank, shows up as revenue on one side and a cost on the other. Revenue looks inflated.
If real. Revenue is overstated, which distorts every metric built on it and can inflate a tax bill.
Where to look, and what to rule out first
Where to look
- Profit and loss: revenue lines that do not correspond to a customer.
- General ledger: paired same-amount entries on the same day across two accounts.
Rule out first
- A same-amount pair can be a genuine customer payment and a genuine supplier payment that coincide.
- Processor payouts legitimately move money and are not transfers in the accounting sense if gross revenue was booked separately.
How it gets fixed
Recode both legs as a transfer so they net to nothing in the profit and loss.
Money raised is booked as revenue
A SAFE, convertible note, loan or investment shows up in the profit and loss as income rather than on the balance sheet as a liability or equity.
If real. Revenue is overstated by the size of the raise, the balance sheet omits a real obligation, and the tax return can show income that was never earned.
Where to look, and what to rule out first
Where to look
- Profit and loss for the month the money landed: an unusually large revenue line.
- Balance sheet: whether a SAFE, convertible note or loan account exists at all.
Rule out first
- A grant may genuinely be income, depending on its terms. Read the agreement rather than assuming.
- A customer prepayment that happens to be large is revenue or deferred revenue, not capital.
How it gets fixed
Reclassify to the correct liability or equity account with the instrument named, and keep the agreement with the entry.
Payroll is booked as one lump from the provider
The whole payroll debit lands in a single 'Payroll' expense account, so wages, employer taxes, benefits and the provider's fee are indistinguishable.
If real. Employer tax cost is invisible, R&D credit work becomes manual, and true cost per employee cannot be read off the books.
Where to look, and what to rule out first
Where to look
- Profit and loss: a single payroll line with no employer-tax or benefits siblings.
- Compare one month's total against the provider's own report for that month.
Rule out first
- A very small business with one employee may reasonably keep this simple, and it is a refinement rather than an error.
- Some providers post the split automatically through an integration that is already correct. Check before flagging.
How it gets fixed
Split the payroll journal into wages, employer taxes, benefits and fees, and map the provider's integration to those accounts.
Reconciliation
20% of the score, 5 checks here.
The payment processor holds a balance nobody reconciles
The bank account is reconciled every month and looks perfect, but Stripe, PayPal, Square or Shopify Payments has no reconciliation at all. Money sits inside the processor between the charge and the payout, so there is a real balance there that never gets tied to anything.
If real. Every month the processor balance drifts, revenue and fees are both wrong, and the error compounds silently because the bank still reconciles cleanly. This is the single most common thing found when taking over a set of books from a prior bookkeeper.
Where to look, and what to rule out first
Where to look
- Chart of accounts: is there an asset account for each processor, separate from the bank? If there is no account, that is the finding.
- Balance sheet: the processor's account balance on the last day of a month.
- The processor's own dashboard: the balance on that same date. Stripe shows it under Balances, PayPal under Summary.
- Reconciliation history in the ledger: which accounts appear, and which never do.
Rule out first
- Processors that pay out same-day and hold nothing legitimately carry a zero balance, so nothing to reconcile is the correct answer.
- Some bookkeepers reconcile the processor inside a clearing account under a different name. Look for 'undeposited funds', 'clearing', or the processor's name as a sub-account before concluding it was never done.
- A processor added in the last month may simply not have reached its first reconciliation.
How it gets fixed
Create an asset account per processor, book gross charges and fees separately, and reconcile the processor to its own statement each month alongside the bank.
Bank or credit card accounts are not reconciled through the last closed month
One or more accounts were last reconciled months ago, or never. Often it is a card nobody uses much, or a second bank account opened later and never wired into the routine.
If real. Nothing on the balance sheet can be relied on, and the longer it runs the more expensive the catch-up becomes.
Where to look, and what to rule out first
Where to look
- QuickBooks Online: Reports, then Reconciliation Reports. The list shows the last reconciled date per account.
- Xero: Accounting, then Reconcile, and the count of unreconciled items per account.
- Compare the account list on the balance sheet against the list that appears in reconciliation history. Accounts missing from the second list are the ones to ask about.
Rule out first
- A closed or dormant account with no activity does not need a current reconciliation.
- The current month is not late. Only count through the last closed month.
- An account opened recently may not have had a statement yet.
How it gets fixed
Reconcile each account forward from the last clean month, then keep every account on the same monthly cycle.
A reconciliation was forced with a plug entry
An account shows as reconciled, but the ledger balanced it by posting a difference to a 'reconciliation discrepancy' or similar account rather than by finding the actual missing transaction.
If real. A plug hides the transaction that was actually missing. The books tie, and they are still wrong. Every real fix should trace to a specific inflow or outflow.
Where to look, and what to rule out first
Where to look
- Chart of accounts: any account named 'Reconciliation Discrepancies', 'Opening Balance Equity', 'Suspense', 'Ask My Accountant' or similar, and whether it carries a balance.
- General ledger for that account: each entry is one forced reconciliation.
Rule out first
- A small balance from a genuine one-time bank error that was investigated and documented is legitimate. Read the memo before assuming.
- Opening Balance Equity carrying a balance in the first weeks after a migration is expected. It becomes a finding when it survives the first close.
How it gets fixed
Work each plug entry back to the transaction it stood in for, post that, and clear the discrepancy account to zero.
Undeposited funds or a clearing account is holding a stale balance
Payments were recorded as received but never matched to the deposit that cleared the bank, so they pile up in a holding account and never leave.
If real. Revenue can be double-counted, and the bank reconciliation gets forced to compensate.
Where to look, and what to rule out first
Where to look
- Balance sheet: 'Undeposited Funds' or any clearing account.
- General ledger for that account, sorted oldest first. Anything older than a couple of months is the finding.
Rule out first
- Payments received in the last few days legitimately sit here until the deposit clears.
- Some businesses run a deliberate clearing account for processor settlements. That is correct practice, not a defect, as long as it clears each month.
How it gets fixed
Match each old item to its actual deposit or write it off with a reason, then keep the account clearing monthly.
Opening Balance Equity still has a balance
The account the ledger uses as a temporary landing spot during setup or migration was never cleared out.
If real. Equity is wrong, and any investor or lender reading the balance sheet sees an account that should not exist on a finished set of books.
Where to look, and what to rule out first
Where to look
- Balance sheet, equity section: 'Opening Balance Equity'.
- The date of the oldest entry in it, which tells you how long it has been sitting.
Rule out first
- A migration inside the last month or two has not reached its first close yet.
- The balance may be correct in amount and simply mis-parked, so it is a reclassification rather than a hunt.
How it gets fixed
Trace the balance to what it actually represents, usually prior retained earnings or owner contributions, and reclassify it.
Chart of accounts
15% of the score, 3 checks here.
The chart of accounts has no home for how this business actually works
A generic template chart with no deferred revenue, no SAFE or note liability, no stock compensation, and no split between the costs of delivering the product and the costs of running the company.
If real. Transactions get forced into whatever account is closest, so the numbers are approximately right and never precisely right.
Where to look, and what to rule out first
Where to look
- Chart of accounts, read end to end. It is usually short enough to scan in two minutes.
- Check specifically for: deferred revenue, SAFE or convertible note, stock compensation, and a cost of revenue section separate from operating expenses.
Rule out first
- A young business genuinely may not need most of these yet. Only the ones matching what the business actually does are findings.
- Accounts may exist under unfamiliar names from an accountant's own template.
How it gets fixed
Restructure the chart around what the business does, then reclassify history so prior periods stay comparable.
Duplicate or near-duplicate accounts are splitting the same cost
'Software', 'Software & Subscriptions' and 'Dues and Subscriptions' all exist and all have balances, so no single line shows what software actually costs.
If real. Spend by category cannot be read, so budgeting and any cost question take manual work every time.
Where to look, and what to rule out first
Where to look
- Chart of accounts sorted alphabetically, which puts near-duplicates next to each other.
- Profit and loss: two lines that would obviously be one.
Rule out first
- A deliberate split, for example software sold to customers versus software used internally, is correct and should not be merged.
- Sub-accounts under a parent are a structure, not a duplication.
How it gets fixed
Merge the duplicates, keep one naming convention, and restate the history so trends survive.
Nothing separates the parts of the business that need separate reporting
Multiple locations, programs, product lines or entities all run through one undifferentiated set of accounts, so profitability per segment cannot be produced without a manual rebuild.
If real. Any question about which part of the business makes money cannot be answered from the books. This is also what breaks profit-share and commission agreements written against a metric the books do not track.
Where to look, and what to rule out first
Where to look
- Whether classes, locations, tags or tracking categories are turned on at all.
- If they are on, what share of transactions actually carry one. Partial adoption is worse than none, because the reports look real and are not.
Rule out first
- A single-product, single-location business does not need this and its absence is correct.
- Some businesses segment through sub-accounts instead, which works.
How it gets fixed
Turn on tracking, define the segments once, and apply them to history so prior periods are comparable.
Revenue and liabilities
15% of the score, 5 checks here.
Revenue is booked net of processor fees
Only the payout that hit the bank was recorded, so revenue is short by the processing fees and the fees never appear as a cost.
If real. Revenue is understated, cost of sales is understated, and margin is wrong in both directions at once. It also makes reported revenue disagree with the processor, which surfaces in diligence.
Where to look, and what to rule out first
Where to look
- Profit and loss: is there a merchant or processing fee expense line at all? If not, this is very likely happening.
- Compare one month of revenue in the ledger against gross volume in the processor's dashboard for the same month.
Rule out first
- Some integrations book gross and fees correctly and simply name the fee account something unexpected. Search by amount, not by name.
- A business paid entirely by bank transfer or cheque has no processor fees, so the absence is correct.
How it gets fixed
Book gross revenue and processing fees separately, then reconcile to the processor's monthly statement.
Annual or prepaid billing is recognized all at once
A customer pays for twelve months up front and the whole amount is booked as revenue in the month it was received, so one month looks enormous and the next eleven look thin.
If real. Monthly revenue is unreadable, growth cannot be measured, and any investor or acquirer will restate it.
Where to look, and what to rule out first
Where to look
- Balance sheet: is there a deferred revenue or unearned revenue liability? If the business sells annual plans and this account does not exist, that is the finding.
- Profit and loss by month: revenue spikes that match a renewal cycle rather than delivery.
Rule out first
- A cash-basis set of books recognizes on receipt by design. Confirm the basis before calling this an error.
- A business that only bills monthly in arrears has nothing to defer.
How it gets fixed
Set up deferred revenue, book prepayments to the liability, and release to revenue across the service period.
A prepaid expense schedule stopped being maintained
Insurance, software or rent paid annually was set up as a prepaid asset and amortized for a few months, then the entries stopped. The balance still looks plausible.
If real. Expenses are understated in every month the schedule was skipped, and the asset on the balance sheet is fictional.
Where to look, and what to rule out first
Where to look
- Balance sheet: prepaid expenses.
- General ledger for that account, and specifically the date of the LAST entry. A balance that ties tells you nothing; the last entry date is the test.
Rule out first
- A prepaid taken out mid-year legitimately has entries only from that point.
- Some businesses expense immaterial prepaids on purpose, which is a documented policy rather than a defect.
How it gets fixed
Rebuild the schedule from the invoice, catch up the missed amortization, and put the remaining months on a recurring entry.
Accounts are negative that should never be negative
Negative accounts payable, negative inventory, a negative bank balance that the bank does not show, or a negative liability.
If real. It usually means a payment was recorded twice, or recorded without the bill it was paying, so both the balance sheet and the profit and loss are affected.
Where to look, and what to rule out first
Where to look
- Balance sheet: scan the sign of every line.
- For any negative, open the general ledger and find the entry that pushed it below zero.
Rule out first
- A genuine supplier credit or customer overpayment can legitimately sit negative for a period.
- A line of credit or overdraft is legitimately negative and is not an error.
How it gets fixed
Trace each negative to its cause, usually a duplicate or an unmatched payment, and correct the underlying entry.
Sales tax collected is sitting in revenue
Tax charged to customers was never separated out, so revenue includes money that belongs to a state.
If real. Revenue is overstated by the tax, and there is an unrecorded obligation to a state that grows every month.
Where to look, and what to rule out first
Where to look
- Balance sheet: a sales tax payable liability. If the business charges tax and this does not exist, that is the finding.
- Compare a month of tax collected in the billing system against the movement in that liability.
Rule out first
- A business with no nexus anywhere and no tax charged has nothing to record.
- Marketplace facilitators (Amazon, Shopify's managed tax, Etsy) may remit on the seller's behalf, in which case the seller correctly shows nothing.
How it gets fixed
Split tax out at the point of sale into a liability account and reconcile it to what was actually filed and remitted.
Tax readiness
15% of the score, 3 checks here.
Contractor payments are not set up to produce 1099s
Contractors are paid through the bank or a card with no vendor record, no W-9 on file, and no 1099 flag, so January becomes a scramble.
If real. Missing 1099s carry per-form penalties, and the information needed to file them gets harder to collect the longer it is left.
Where to look, and what to rule out first
Where to look
- Vendor list: which vendors are marked as 1099-eligible, and whether a taxpayer ID is recorded.
- General ledger: payments to individuals coded to contractor or professional fees with no vendor attached.
Rule out first
- Payments through a platform that files on the payer's behalf, or to a contractor paid by card, may not require a 1099 from the business at all.
- Payments to corporations are generally exempt, so an unflagged corporate vendor is usually correct.
- A contractor under the annual threshold does not need one.
How it gets fixed
Build the vendor records, collect the outstanding W-9s now rather than in January, and flag eligibility going forward.
Research spend cannot be separated from everything else
Engineering payroll, contractor development work and the software used to build the product are mixed in with general operating costs.
If real. A credit the business may be entitled to becomes a manual reconstruction, and the cost of claiming it can exceed the claim.
Where to look, and what to rule out first
Where to look
- Profit and loss: whether any research or product development grouping exists.
- Whether engineering payroll is distinguishable from the rest of payroll.
Rule out first
- A business doing no qualifying research correctly has nothing here.
- The split may exist through classes or departments rather than accounts.
How it gets fixed
Separate research costs in the chart or through tracking, and apply it to the current year before it closes.
A preparer could not file from these books without rework
The balance sheet does not balance to the prior return, retained earnings was adjusted by hand, or the prior year changed after it was filed.
If real. The preparer bills to rebuild, or files from figures that no longer agree with the books, which surfaces later.
Where to look, and what to rule out first
Where to look
- Retained earnings: any manual journal entry directly against it.
- Compare the prior year-end balance sheet in the ledger today against the figures on the filed return.
Rule out first
- A legitimate prior-period adjustment posted deliberately and documented is correct practice.
- The preparer may have made book-to-tax adjustments that live outside the ledger by design.
How it gets fixed
Reconcile the ledger back to the filed return, document any difference, and lock closed periods.
Consistency and timeliness
10% of the score, 4 checks here.
The books are behind
The most recent transaction is weeks or months old, so no current question can be answered from them.
If real. Decisions get made on the bank balance instead of on the books, which is the state most owners are actually in.
Where to look, and what to rule out first
Where to look
- The date of the most recent entry in the general ledger, against today.
- The date of the last closed month.
Rule out first
- A deliberate quarterly close is a choice, not a defect, though it limits what the books can be used for.
- A seasonal business may genuinely have no activity to record.
How it gets fixed
Catch up to current, then hold a fixed monthly close date.
Duplicate transactions
The same expense or deposit appears twice, usually where a bank feed and a manual entry both landed, or where a feed was reconnected and re-imported history.
If real. Costs and revenue are overstated, and the reconciliation gets forced to absorb the difference.
Where to look, and what to rule out first
Where to look
- General ledger sorted by amount: identical amounts on or near the same date.
- The period around any bank-feed reconnection, which is where re-imports cluster.
Rule out first
- Genuinely recurring identical charges, such as a monthly subscription, look like duplicates and are not.
- A split payment to the same vendor on the same day can be legitimate.
How it gets fixed
Remove the duplicates, then set the feed rules so re-imports cannot recreate them.
The same vendor is coded differently from month to month
One supplier lands in three different accounts across the year, so no trend line is real.
If real. Year-on-year and month-on-month comparisons are meaningless, which is usually the first thing anyone wants from the books.
Where to look, and what to rule out first
Where to look
- Pick the five largest recurring vendors and read their history by account.
- Any month where a category jumps sharply with no business reason.
Rule out first
- A vendor that genuinely supplies two different things should be split, and that is correct.
- A deliberate reclassification part-way through the year will look like inconsistency in the raw data.
How it gets fixed
Pick one treatment per vendor, restate the history, and set rules so the coding holds automatically.
Closed periods are never locked, so history keeps moving
Anyone can post into a month that was already reported on, so last quarter's numbers are different today than when they were presented.
If real. Reports cannot be trusted to stay put, which is corrosive in a way that shows up only when someone checks an old number.
Where to look, and what to rule out first
Where to look
- Whether the ledger has a closing date or period lock set at all.
- Any entry dated into a period that was already reported.
Rule out first
- A deliberate correction to a prior period is legitimate when it is documented.
- Very young businesses may not have anything worth locking yet.
How it gets fixed
Set a closing date after each close and require a documented reason to reopen.
Where you are
0 of 25Mark a check to start. Nothing here leaves your browser.
A diagnostic, not an audit. It cannot tell you your books are correct.
What to do about what you found
Nothing marked as found yet. Anything you mark found appears here, worst first, with how it gets fixed.
Email yourself the ones you could not settle
We will send the checks you left at cannot tell, each with where to look and the document that would settle it, so you can take the list to whoever keeps your books. Nothing is gated behind this. You already have everything above.
We'll only email you about this. Unsubscribe anytime.
Using this to judge a bookkeeper rather than the books
Hand the list to whoever keeps your books, or to whoever is pitching for the job, and ask them to walk it against your own file out loud. You are listening for two things.
The first is how often they say they cannot tell. A good bookkeeper says it several times in 25 checks and names the document that would settle each one. Someone who clears all 25 in a single pass without asking you a question has not opened the file.
The second is whether they rule out the innocent explanation before they call something wrong. Most of what looks alarming in a ledger has a boring cause, and a bookkeeper who skips that step will bill you to fix things that were never broken while missing the two that were.
What you want back is a ranked list of what is wrong, what each one costs, and what it takes to fix, in that order. Reassurance is not an answer to any of the 25 questions above.
Let your assistant read the ledger instead of you
Most of these checks need the file open, which is slow work by hand. The same checks sit on a free public MCP server, so Claude or ChatGPT can pull them, work them against an export you hand it, and score the result the same way this page does. No signup, no API key, and the rules live on the server so a correction reaches you rather than going stale in a downloaded copy.
The server
https://medianfi.com/mcp
| Where you are | Add the server |
|---|---|
| Claude desktop or claude.ai | Settings, then Connectors, then Add custom connector, paste the URL |
| Claude Code | claude mcp add --transport http --scope user median https://medianfi.com/mcp |
| ChatGPT | Settings, then Connectors, then Add |
Then ask it to run a books health check on your file. Add the server before you start the session you plan to use it in, because a connector added partway through does not appear until the client reloads, and an assistant that cannot reach the checks will answer from its own training data instead.
Common questions
Or hand us the file and we will walk it for you
Twenty minutes with an accountant on what is actually wrong in your QuickBooks or Xero file, in the order it costs you money. You keep the findings whether or not you work with us. If you do, we categorize and post your transactions every business day, and what we charge is on the pricing page.