I Haven't Done My Bookkeeping All Year — What Do I Do?

If you haven't done your bookkeeping all year, you're not alone.

Maybe you started the year intending to keep everything organized. Then work got busy. Receipts accumulated, bank statements piled up, and bookkeeping kept getting pushed to next month.

Now tax time is getting closer and you have a year's worth of business transactions to sort out.

The good news is that you can catch up.

For a straightforward sole proprietor or freelancer, a year of catch-up bookkeeping may be less complicated than it first appears. The key is to stop looking at twelve months of transactions as one enormous project and work through your records systematically.

You can do this yourself using a spreadsheet, use bookkeeping software, hire a bookkeeper, or use a tool designed to organize historical transactions for tax preparation.

If you want to tackle it yourself, we've also created a free Catch-Up Bookkeeping Excel Template you can use as you work through the steps below.

Download the free Catch-Up Bookkeeping Excel Template (XLSX)

Here's where to start.

1. Gather a full year of bank and credit-card statements

Start with every account you used for your business.

That might include:

• a business checking account
• a business savings account
• one or more credit cards
• a personal account you occasionally used for business purchases
• payment services such as PayPal
• other accounts used for business transactions

Download statements covering the entire tax year and check that you have every month.

If you used more than one account, don't make the mistake of organizing one account and assuming you're finished. You want a complete picture of the accounts through which business transactions occurred.

Bank and credit-card statements can provide an excellent foundation for catch-up bookkeeping, but they aren't necessarily your complete business records.

Tax authorities in both the United States and Canada expect business owners to maintain records supporting the income and expenses reported on their tax returns. The IRS provides recordkeeping guidance for small businesses and self-employed individuals, while the CRA provides similar guidance for business records in Canada.

If you're relying primarily on statements to reconstruct your bookkeeping, you may also want to read our guide to filing self-employed taxes using bank statements, including what your statements can and can't establish.

2. Make sure you've captured all of your business income

When people are behind on their bookkeeping, there's a natural tendency to concentrate on expenses.

Don't forget about revenue.

Gather information from sources such as:

• invoices
• payment processors
• bank deposits
• cash receipts
• electronic payments or e-transfers
• online marketplaces
• other sales records

Then compare those records with the deposits appearing in your accounts.

Be careful about simply treating every deposit as revenue. Transfers between your own accounts, personal contributions, loans and other non-business deposits can appear alongside customer payments.

The opposite can happen too. If a customer paid you through an account that isn't included in your bookkeeping, your bank statements may not capture all of your business income.

Your goal is to determine your actual business income, not simply total the deposits in one bank account.

3. Start entering your transactions

Now you need to turn the activity on those statements into an organized transaction list.

If you're doing this yourself, this is where our free Catch-Up Bookkeeping Excel Template can help. Rather than building a spreadsheet from scratch, you can use the template to record:

• transaction date
• description
• amount
• whether the transaction is income or an expense
• expense category
• business-use percentage
• transactions that need further review
• notes about unusual items

Download the free Excel template

Work through the accounts systematically. You might complete the entire bank account first and then move to the credit card, or work month by month.

The important part is having a process that helps you make sure nothing gets skipped or entered twice.

4. Separate business and personal transactions

If you used the same account for both business and personal spending, you'll need to separate them.

Go through the transactions and identify the ones that relate to your business.

A personal purchase doesn't become a business expense simply because you paid for it from your business account. Likewise, paying a legitimate business expense with your personal credit card doesn't automatically make it a personal expense.

What matters is what the transaction was for.

Some expenses can also have both business and personal components. Common examples include:

• cell phone
• internet
• vehicle expenses
• home office costs

These may require an additional calculation rather than simply categorizing the entire payment as a business expense.

Our Excel template includes a business-use percentage field for this reason, and the summary tab weights each category by it. But determining the appropriate business percentage is still your responsibility.

If you're unsure about the tax treatment of an expense, flag it for review rather than guessing.

5. Categorize your business expenses

Once you've identified the business transactions, organize them into useful categories.

Depending on your business, common categories might include:

• advertising
• bank and payment-processing fees
• insurance
• interest
• meals
• office expenses
• professional fees
• rent
• repairs and maintenance
• software and subscriptions
• supplies
• telephone and internet
• travel
• vehicle expenses

You don't need to invent dozens of extremely specific categories.

The objective is to turn hundreds of individual transactions into organized information that you or your tax preparer can actually use.

If you don't know where something belongs, don't force it into a category simply to finish the spreadsheet. Mark it for review and come back to it later.

6. Keep tax preparation in mind

The categories you ultimately need will depend partly on where you file your taxes.

In the United States, a sole proprietor generally reports business income and expenses on Schedule C (Form 1040), Profit or Loss From Business. You can also read our Schedule C expense category guide for a more detailed look at how common business expenses are organized for US tax purposes.

In Canada, a sole proprietor generally reports business or professional activities using Form T2125, Statement of Business or Professional Activities. Our Canadian T2125 expense-category guide explains how common business expenses fit into the Canadian form.

The forms and tax rules aren't identical. That's why the free spreadsheet uses broad bookkeeping categories rather than pretending to calculate either your Schedule C or T2125 for you.

You don't need to understand every tax rule before you start your catch-up bookkeeping. First get the transactions organized accurately. Questions about the tax treatment of particular expenses can then be dealt with separately.

7. Don't assume every purchase is a regular expense

Suppose your transactions include:

• a monthly software subscription
• printer paper
• a new laptop
• office furniture

These purchases shouldn't necessarily all be treated the same way.

Larger purchases such as computers, furniture, equipment and machinery may need to be treated differently from ordinary day-to-day business expenses. The specific tax treatment differs between the United States and Canada.

Rather than automatically putting a significant purchase into a regular expense category, flag major equipment and asset purchases for review so they can receive the appropriate tax treatment when your return is prepared.

8. Investigate transactions you don't recognize

After several months have passed, a transaction such as:

SQ *ABC SERVICES — $184.37

may mean absolutely nothing to you.

Don't guess just to finish your bookkeeping.

Try:

• searching your email for the vendor name
• searching for the exact dollar amount
• looking through digital receipts
• checking online purchase histories
• reviewing invoices
• considering what you were doing around the transaction date

If you still can't determine what something was, flag it.

Our spreadsheet includes a review field specifically so you can identify transactions that need another look rather than making up an answer.

It's usually better to finish with a short list of unresolved transactions than to confidently put unknown purchases into the wrong categories.

9. Look for business expenses that aren't on those statements

This is one of the limitations of doing bookkeeping from bank statements:

A statement can only show you transactions that went through that particular account.

Perhaps you occasionally used your personal credit card to pay for business expenses. Maybe you paid cash. Or perhaps you have business expenses that require separate records or calculations rather than simply categorizing a transaction.

Consider whether you have:

• business expenses paid personally
• cash purchases
• vehicle expenses
• business use of your home
• equipment purchases
• expenses paid through another bank or credit-card account

Your bank statements can provide the backbone of your catch-up bookkeeping without necessarily representing every item that belongs in your records.

10. What if you're missing receipts?

Bank and credit-card statements can help reconstruct what happened, but a transaction appearing on a statement doesn't necessarily tell you exactly what you purchased or establish why it was a business expense.

Look for supporting information such as:

• emailed receipts
• supplier invoices
• online order histories
• payment confirmations
• contracts
• calendar entries
• other business records

The IRS and CRA both have recordkeeping requirements for amounts reported on business tax returns. We cover this issue in more detail in What Your Bank Statement Doesn't Prove: Receipt Recordkeeping for Sole Proprietors.

If you're missing documentation for a significant expense or aren't sure whether the information you have is sufficient, consider discussing it with your accountant or tax professional rather than simply assuming the expense is deductible.

11. Review everything before using it for your tax return

Once you've finished categorizing the transactions, step back and look at the year as a whole.

Ask yourself:

• Does my total revenue make sense?
• Are any customers or sources of income missing?
• Are there unusually large expenses?
• Are personal transactions still included?
• Are there duplicate transactions?
• Are there transactions I couldn't identify?
• Did I buy computers, equipment or other significant assets?
• Did I pay business expenses personally?
• Are any accounts missing?
• Do the expense totals generally make sense for my type of business?

The summary page in the free Excel template can help with this review because you can look at the year's income and expense categories together rather than reviewing transactions one at a time.

But remember: an organized bookkeeping summary isn't the same thing as a completed tax return. Tax adjustments may still be required.

Do I need QuickBooks or accounting software to catch up?

Not necessarily.

Full accounting software such as QuickBooks, Xero or Wave can make sense if you need ongoing accounting records, invoicing, accounts receivable, accounts payable, regular bank reconciliations, financial reporting or other bookkeeping functions throughout the year. For many businesses, maintaining proper books throughout the year is the better approach.

But a straightforward sole proprietor who reaches tax time without having done their bookkeeping has a somewhat different problem:

You need to turn last year's financial activity into organized information for your tax return.

There are several ways to do that.

Option 1: Use a spreadsheet

For a straightforward business with a manageable number of transactions, you may be able to do the catch-up bookkeeping yourself. That's why we've made our Catch-Up Bookkeeping Excel Template available as a free download.

There's no software subscription. You simply work through your transactions and enter them into the spreadsheet.

The trade-off is time. If you have hundreds of transactions, entering and categorizing a year of bank and credit-card activity manually can become a substantial project.

Option 2: Use accounting software

You could set up QuickBooks, Xero, Wave or another accounting system and reconstruct your historical bookkeeping there. This may make particular sense if you also intend to use that system for your ongoing bookkeeping.

For someone who only needs to organize a relatively straightforward year for tax preparation, however, setting up a complete accounting system retroactively may be more than they need.

Option 3: Hire a bookkeeper

If your business is complicated or you simply don't want to do the work yourself, hiring a bookkeeper to complete your catch-up bookkeeping may be worthwhile.

This is particularly worth considering if you have multiple accounts, payroll, inventory, sales taxes, significant accounts receivable or payable, loans, foreign currencies or other accounting complexities.

Option 4: Have Heightly organize the statements

If your business is relatively straightforward but you don't want to manually enter a year's worth of transactions into Excel, there's another option. This particular problem is why we built Heightly.

You upload your bank and credit-card statements and Heightly helps:

• extract the transactions
• organize them into possible tax categories
• identify transactions that need your review
• separate personal and business items
• map transactions toward Schedule C categories in the United States or T2125 categories in Canada
• produce an organized Excel and PDF tax-preparation package

You still review the results. Software can't know the business purpose of every purchase, whether a particular expense is deductible in your circumstances, or whether transactions occurred outside the accounts you uploaded.

Heightly also isn't a replacement for an accountant or tax professional when you need professional advice.

The difference between the free spreadsheet and Heightly is fairly simple:

With the spreadsheet, you organize the transactions yourself.

With Heightly, you upload the statements and let the software do much of the initial organization for you.

Can I do a whole year's bookkeeping at once?

For a relatively straightforward sole proprietor, it may be possible to organize a year's transactions at tax time.

That doesn't mean it's necessarily the best way to run your business. Regular bookkeeping can make it easier to understand how your business is performing, identify problems, monitor cash flow and prepare for taxes. The IRS and CRA both provide guidance about maintaining ongoing business records rather than trying to reconstruct everything at tax time.

But if you didn't do that this year, dwelling on what you should have done doesn't get the bookkeeping finished.

Start with the records you have and get caught up. Then decide whether you want a different bookkeeping process going forward.

How long does it take to catch up on a year of bookkeeping?

It depends.

A consultant with one bank account, a few dozen transactions each month and no inventory may have a relatively straightforward job. A business with multiple accounts, hundreds of monthly transactions, employees, inventory, sales taxes, accounts receivable and accounts payable is a very different situation.

Some factors that can make catch-up bookkeeping more difficult include:

• multiple bank and credit-card accounts
• mixing personal and business spending
• large numbers of transactions
• missing statements
• missing receipts
• cash transactions
• inventory
• payroll
• sales taxes
• foreign currencies
• significant equipment purchases
• loans and financing
• accounts receivable or accounts payable

If your business has several of these complexities, professional bookkeeping assistance may be worthwhile.

The most important thing is to start

If you've gone an entire year without doing your bookkeeping, don't try to solve everything at once.

Start with your statements. Make sure the year is complete. Identify your income. Separate business from personal transactions. Categorize your business expenses. Investigate the transactions you don't recognize. Add items that aren't captured by your statements. Then review the results.

If you'd like to work through that process yourself, download our free Catch-Up Bookkeeping Excel Template and start organizing your transactions.

If you'd rather not manually enter a year's worth of bank and credit-card activity, Heightly can organize the transactions from your statements for you.

Either way, a year's worth of unfinished bookkeeping becomes much less intimidating once you turn it into a process and start working through it.

And when you're finished, you can decide whether next year you'd rather keep up throughout the year — or at least start a little earlier.

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This article provides general information only and is not accounting, tax or legal advice. Tax and recordkeeping requirements depend on your jurisdiction and individual circumstances. The free spreadsheet and Heightly are organizational tools and do not determine whether an expense is deductible or calculate your tax liability. Consult a qualified professional regarding your specific situation.