What Does a Bookkeeper Look for During a Bookkeeping Health Check?

Bookkeeping Health Check

You’re using QuickBooks Online or Xero. Your bank transactions are coming in. Expenses are categorized. Maybe you’re even running reports.

But how do you know if everything is actually right?

That’s where a Bookkeeping Health Check, sometimes called a Diagnostic Review, comes in.

A Bookkeeping Health Check is a deep dive into your current accounting software to identify red flags, inconsistencies, missing information, and areas that may need to be cleaned up. The goal isn’t just to find what’s wrong. It’s to determine whether you can actually trust the numbers you’re looking at.

Different bookkeepers may approach diagnostic reviews differently. The following is based on my training and experience as a Certified Tax-Ready Books Specialist and QBO Cleanup Specialist.

It All Starts With a Conversation

Before I start digging through reports, I want to understand your business.

What does your business do? How are you currently handling your bookkeeping? What’s working well? What’s frustrating you? And what are you trying to accomplish with your business?

I’ll also ask about things such as:

• Bank and credit card accounts

• Business loans and lines of credit

• Payment processors such as Stripe, Square, and PayPal

• Vehicles, buildings, and major equipment

• Employees and subcontractors

• How you invoice customers and collect payments

• How you pay bills and vendors

Knowing these answers gives me context. After all, your books should reflect what is actually happening in your business.

Is the Company Set Up Properly?

One of the first things I review is the basic company setup.

Does the accounting software reflect the correct business structure (sole proprietor, LLC, partnership, S corporation, etc.)? Is the industry set up appropriately? Is the business using a software plan that fits its needs?

These may seem like small details, but they can affect how your bookkeeping is organized and how useful your financial information is.

Banking and Reconciliations

Just because transactions are downloading from your bank doesn't mean your books are accurate.

I look at questions such as:

• Are all business bank and credit card accounts connected?

• Are the bank feeds working properly?

• Do the balances in the accounting software reasonably match the actual bank and credit card balances?

• When were the accounts last reconciled?

• Is there a consistent reconciliation history?

Reconciliations are one of the most important parts of accurate bookkeeping. They help confirm that transactions aren't missing, duplicated, or incorrectly recorded.

If your accounts haven't been reconciled, it's difficult to know whether you can trust your financial reports.

Chart of Accounts

Think of your Chart of Accounts as the filing system behind your financial reports.

I review whether it is organized appropriately for your industry and business entity and whether the categories provide useful information without becoming unnecessarily complicated.

I'll also look for duplicate accounts, vague categories, outdated accounts, and accounts that simply don't belong.

Profit & Loss Review

Your Profit & Loss Statement tells the story of your business's income and expenses, but only if the information behind it is accurate.

Some of the red flags I look for include:

• Unusual or unexpected negative balances

• Assets, liabilities, or equity accounts appearing where they shouldn't

• Duplicate or very similar expense categories

• Categories that are too vague or unnecessarily detailed

• Large balances in Uncategorized Income or Uncategorized Expenses

• A large number of transactions sitting in "Ask My Accountant"

I also look at whether the report makes sense based on what I learned about your business during our initial conversation.

Balance Sheet Review

The Balance Sheet is often where bookkeeping problems hide.

I review it for unusual negative or zero balances, duplicate accounts, missing accounts, and balances that simply don't make sense.

I also look for things I would expect to see based on our conversation.

For example, if you told me the business owns three vehicles and expensive equipment but there are no fixed assets on the Balance Sheet, that's something worth investigating.

Likewise, if you told me the business has several loans but there are no loan liabilities or the balances haven't changed in months, that raises questions.

I also review whether:

• Equity accounts make sense for the business entity

• Loan balances appear reasonable

• Loan payments are properly split between principal and interest

• Assets and liabilities are appearing in the appropriate places

A clean Balance Sheet is especially important for tax-ready books because many of these balances carry forward from year to year.

Payroll

If you have employees, I'll review how payroll is flowing into your accounting software.

Is your payroll processor connected or being recorded correctly? Are wages, payroll taxes, and employer expenses going to the appropriate accounts?

I'll also look for unusually large payroll liability balances and whether those liability accounts are being reconciled.

A payroll report saying one thing while QuickBooks or Xero says another is a red flag that needs further investigation.

Contractors

If you pay subcontractors or other 1099 vendors, I review whether those payments are being tracked properly.

Waiting until January to figure out who should receive a 1099 can create unnecessary stress. Good bookkeeping makes year-end reporting much easier.

Sales Tax

If your business collects sales tax, I review how those transactions are being recorded and whether the Sales Tax Payable balance appears reasonable.

Large or unusual balances can indicate that payments weren't recorded correctly or that the account hasn't been reconciled.

Accounts Receivable

If you invoice customers, I'll review the Accounts Receivable Aging Report.

I'm looking for things such as:

• Invoices that have been outstanding for more than 90 days

• Negative customer balances

• Old invoices that may have actually been paid

• Customer payments that haven't been properly applied

  
  

An invoice showing as unpaid in your accounting software doesn't necessarily mean the customer still owes you money. Sometimes it means the payment wasn't recorded correctly.

Accounts Payable

If you enter bills into your accounting software, I'll also review the Accounts Payable Aging Report.

I'll look for old outstanding bills, negative vendor balances, duplicate bills, or bills that may have been paid but weren't properly matched to the payment.

The Goal Isn't to Find Fault. It's to Find Clarity

A Bookkeeping Health Check isn't about judging how you've been managing your books.

Many business owners are doing their own bookkeeping while also running their business, serving customers, managing employees, handling sales, and wearing a dozen other hats.

The purpose is to answer a much more important question:

Can you trust your numbers?

At the end of the review, you should have a clearer understanding of what's working, what needs attention, and what should happen next.

Sometimes the books only need a few corrections. Other times, they need a more extensive cleanup. And sometimes, the best news is that you're doing a lot more right than you thought.

Because good bookkeeping shouldn't only get you through tax season.

It should give you the financial clarity to answer questions like:

Can I afford to hire? Can I buy that equipment? Can I pay myself more? Can I expand? Where is my money actually going?

That's the difference between books that are simply being maintained and books that are both tax-ready and decision-ready.

Clean books. Clear insights. Confident decisions.

Schedule a Free Bookkeeping Health Check