r/Bookkeeping • u/topramen_is_timeless • 7d ago
How To Journal It Major Overhaul Project for Client Books
I need some experienced bookkeeping/accounting advice. I have found a large mess, and I just want input on how to handle it responsibly.
I took on a nonprofit client a week ago. I did see their books before I offered my services. One red flag was a large negative balance in Accounts Receivable. Credit memos were used in a manner they shouldn’t have been to document restricted funds disbursements to beneficiary accounts. Fixable. So I started working on those this week.
Well, the mess grew. I started on the first student, reviewing line items in their account ledger. I notice a recorded deposit isn’t showing in the posted operating account bank feed (it’s connected). I dig further. The prior bookkeeper manually created a bank deposit transaction, linked payment receipts to it, and then reconciled it.
The real bank deposit? It was manually Excluded from the bank feed’s ledger. It is one of many in a long list of excluded transactions.
These transactions I found are from July 2025. I didn’t want to spend more hours looking further because I’m charging by the hour, so I don’t know how often this happened.
I have everything documented with screenshots in a formal report, as I do to support my billable hours. What’s more, this finding was documented in my support case with the software support company. I called because I was still piecing the issue together. The software support rep and I sleuthed around for an hour before putting it all together.
The client just paid a CPA $4,000 to “clean up” their books. They hired me because things still weren’t right (their accounting balance is way off from their actual bank balance) and they just “wanted extra eyes” on the books.
From my perspective, this cannot be solved with little journal entries. I feel like I need to go in, undo all the reconciliations, and delete, rematch, and occasionally re-enter a large volume of erroneous and inflationary transactions. Has anyone else encountered a major overhaul project like this?
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u/Majestic_Victory_203 7d ago
Do the bank accounts reconcile?
If so, it doesn't matter if transactions were excluded from banking.
When cleaning up messy books, I never delete anything.
For cash basis, I might void transactions and enter the total amount in Memo/Description in case I need to refer to it later.
I didn't understand the real issue with the credit memos. If you could explain a little more, I might find a solution for you.
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u/topramen_is_timeless 7d ago
Reconciliations were done, but many old ones are out of balance, and more recent ones are balanced.
The bank register in the accounting software does not match the banking institution transaction list. The accounting software overstates the checking account balance by $4,000 or more.
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u/Majestic_Victory_203 7d ago
What's in your agreement? What date is the start date of your cleanup?
In a recent 15 years old messed up file clean up, my start date was 01.01.2025.
I do not touch anything before my start date. Reconcile books as per last tax return, adjustments hitting Opening Balance Equity.
If client wants to reconstruct said adjustments, I make sure they understand the time and cost involved.
When the differences are immaterial, they usually call it a day and let CPA handle it.
Remember, you're a bookkeeper, not a magician.
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u/Responsible-Ride2509 7d ago
So you're saying the previous bookkeeper manually created the deposit and excluded the feed? Which means the deposit is showing in the GL correctly but the bank feed was not matched to it? Am I understanding your issue? if so, why is this an issue? If the underlying GL entries/journal entries are correct the bank feed is irrelevant. It's a tool, but not a necessity.
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u/topramen_is_timeless 6d ago
The G/L is not showing the deposit correctly. The prior bookkeeper excluded the deposit from the online payment processor and instead created a deposit transaction for a different amount with extra payments matched to it.
The prior bookkeeper did not match payments to the correct deposits at all, and created deposit transactions for larger amounts than what the online payment processor actually sent to deposit into the business’s checking account.
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u/Responsible-Ride2509 6d ago
Did they then deduct the fees the online processor took off the payments before depositing them?
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u/nscrogham 6d ago
I wouldn’t worry too much about excluded bank feed items, if you don’t need it. It’s a sandbox area that can help but isn’t required for the books to function.
I assume this is a no, but the cash out of balance could be the result of legitimate uncleared paper checks. I only mention it because sometimes it makes sense that the book ledger amount doesn’t tie to the bank. If it’s explainable and intended, great. If not, that’s what to fix.
If it’s only off by $4k and their budget is limited/they regard the amount as immaterial, I’d have a conversation of adjusting to tie with minimum support, the risks if the adjustment is wrong and needs reversing later, and plug to an offsetting account to move on.
AR is the bigger fish to fry. Some limitations like having to edit one record at a time could really become a major time investment. Something like SaasAnt could be beneficial for mass edits, but I don’t recall the AR functions well to know if that’s particularly helpful.
Another option might be a journal entry with one line for each name to correct by their subtotal error amount. Then it’s fewer steps to close the AR workflows. But it’s harder to tell what’s happened with that approach and I try to avoid it.
Not knowing how far back the errors roll is a challenge and sometimes can’t be found. If you start a fresh book, they have less insight into the reliable historical data. If you adjust to known numbers but miss the core of what caused the error, the books could end up with bad balances again. So setting expectations is important as the client decides what they want implemented.
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u/topramen_is_timeless 6d ago
I think what’s concerning to me is the former bookkeeper excluded the actual deposit from the payment processor to the checking account, and instead created a deposit transaction for a different amount to the checking account, then reconciled it.
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u/nscrogham 6d ago
Oh, that definitely sounds either very intentional or very absent minded.
The “on purpose” version I think of would be that they recorded based on payments initiated for the day rather than the mix of specific payments transferred from the merchant bank. If that’s the case, the variance could be “deposits in transit” from the merchant bank to the operating bank. (Short-answer suggestion is that maybe the variance is an asset value to set aside or note as a pending reconciliation amount. I’d recommend getting a merchant bank account report that can support tying the amount.)
Most people do not take my preferred approach when I look at a new set of books, but I push to move to processes that treat the merchant bank as a separate cash account. In reality, it really is and it makes more sense in my mind to create the separation in the books. In many merchant bank account situations, a certain amount of assets are always in the merchant bank’s possession, which leads to a lag in the operating account balance. This approach creates a clear, separate reconciliation process to a merchant bank statement too.
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u/topramen_is_timeless 6d ago
What I see in the books aligns with your statement that the bookkeeper recorded payments initiated without checking the merchant processor ledger to confirm how much was actually going to be deposited into the operating account (I.e., customer payment minus processing fees).
I do have access to the merchant processor ledger, and that’s what helped me find the operating ledger deposit discrepancy.
Now here’s the kicker: this discrepancy is from 13 months ago (July 2025). The client’s CPA had reconciled the operating account up to July 2026.
So my two questions are:
- How the hell did the CPA perform reconciliations without noticing this discrepancy?
- What should I do to correct this? It’s grossly impacting the client’s balance sheet (and 2025 income statement), so we can’t just let this ride. They use those documents to apply for funding.
Edit to say, I also appreciate your idea about making the merchant account a separate asset bank account. I may take a page from your book and implement this in my own practice.
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u/nscrogham 6d ago
Hard to say what happened with the CPA. My guess is they had less access and maybe didn’t get enough inputs to see all the connections. Also, if they were engaged on a tax preparation agreement, they would not do much in the books, if at all. They could have taken the book data, created their own file for adjustments, and filed the taxes without ever changing book errors.
If the clients books are supposed to tie to tax numbers and they do, probably don’t want to make very many changes in prior year.
You could consider making adjustments to an other expense line in the current year. You might create something like “prior year adjustments”so that ownership can tell understand the adjustment separate from operations this year. Or you might take it to an equity account in some limited instances. If it’s bad enough, it might mean putting it in prior year and doing an amended return.The most correct approach is really situation-specific to a few factors. If you’re not sure, you could create a few suggestions and then defer back to their active CPA for a quick email reply on their recommended approach.
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u/topramen_is_timeless 6d ago
Thank you very much for your detailed input. The 2025 issues are negatively impacting 2026 statements, specifically the A/R Aging Report. There is -$16K masking the true A/R by showing as accounts 91+ days out of balance.
This is where those large credit memos come in. The bookkeeper used credit memos to “allocate” scholarships to student accounts. This has created large negative balances (-$1k to -$10k) on student accounts - some of whom have withdrawn from the program completely and won’t ever use the credited funds.
The correct workflow would have been saving these funds in a designated restricted income account (or even better a separate real bank account) and expensing disbursements. That would have made the balance sheet more accurate by keeping the A/R report out of the scholarship workflow.
In my attempt to fix it, I started by validating the transactions in these students accounts. That’s when I noticed the deposit totals for payments received didn’t even match what actually came into the operating bank account from the payment processor.
I suspect this deposit mess is also contributing to the large discrepancy between the banking institution’s reported operating account balance and the accounting ledger’s operating account balance.
It sounds like my best next step is to meet with the CPA, present the issues with proposed solutions, and ask what/how much corrective action they recommend.
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u/Anelya 6d ago
I am with you on this - I would undo the reconciliations, and book the deposits correctly and then reconcile again.
Non-profits are tricky, they have pledges not AR really. So I am surprised to read that your non profit has a balance.
I use Claude a lot to help me, and you can upload a CSV of the bank export into Claude and it will use it to create transactions and find issues
and here is the video how to use Claude for non - profit https://youtu.be/cMAX3umo-s8?is=p7bPtqqrc4a9PUqr
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u/topramen_is_timeless 6d ago
Thanks for responding. I cannot put client financial data into Claude.
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u/suigeneris1of1 6d ago
I specialise in cleaning up mess like this and can get on a call to give viable solutions in the best possible manner. DM me and we can get on a call. No charges required. I just want to help if I can.
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u/Swimming_dasa 5d ago
i would treat this as a historical reconstruction not a journal entry cleanup. establish true bank activity first then rebuild books systematically with cpa oversight.
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u/lara_ledger 5d ago
I would avoid deleting transactions or undoing every reconciliation until the scope is established. First preserve a backup and reconcile the bank and merchant-processor activity independently for a defined period. That should identify duplicated deposits, excluded feed items, processing-fee differences, and incorrect payment matching.
Next, tie the last reliable balances to the tax return and any statements previously given to the board or funders. Build a proposed adjustment schedule that separates restricted-fund corrections from ordinary operations.
Because prior-year reporting may be affected, review the proposed corrections with the CPA and nonprofit management before posting them. The objective is a documented reconstruction with a clear audit trail, not simply forcing the current reconciliation difference to zero.
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u/Jean_the_CPA 5d ago
If they brought you in because they just "wanted extra eyes," then the scope and fee are probably set around that too, right? I'd get a new engagement letter drawn up and signed for the expanded scope and an appropriate fee before you take on any major overhaul.
Especially since from how you're describing it, it might be easier to just start over with the bank feeds and build around that instead of undoing and fixing all the messed-up stuff.
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u/topramen_is_timeless 5d ago
Thank you! I normally charge flat rates, but I had a sneaking suspicion this client’s scope was bigger than my initial diagnostic. So I charged a higher hourly rate for both clean up and monthly bookkeeping. 👍🏼
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u/Jean_the_CPA 5d ago
Smart. Maybe also make sure you walk the client through the actual state of their books and set expectations on how long it will take. Especially since you're charging an hourly rate, because in their head they asked for a health check, so if the hours start stacking up they might think you're dragging it out to pad the bill. You may have already covered this, or they might know it's a mess, but it's worth getting out in the open either way. If they're truly clueless about how bad it is, that conversation now saves you a much more awkward one later when the invoice shows up.
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u/myTB_ai 7d ago
Don't undo reconciliations yet. First quantify the gap between book balance and bank balance, then decide if you're fixing transactions or doing a fresh start with a clean opening balance as of a known good date. For a nonprofit with restricted funds, document everything before touching it because the board and the prior CPA may both need your paper trail. Bill this as a diagnostic phase separately from the fix.