How to Catch Up on Bookkeeping When You're Months Behind

To catch up on bookkeeping, gather every bank, credit card and loan statement for the months you missed, then work forward from the oldest month: categorize the transactions, match receipts, and reconcile each account to its statement before moving on. Once the books are current, deal with any GST/HST returns you missed, then set up a monthly routine so you do not fall behind again.

It is not complicated work. It is just a lot of it, done in the right order.

First, decide how far back you need to go

Before you open your accounting software, work out where the books were last right. That is your starting line.

• Find the last reconciled month. In QuickBooks Online or Xero, check the reconciliation history for each bank and credit card account. The last month where every account reconciled cleanly is usually your starting point.
• Check your last filed returns. If your last GST/HST return or year-end was prepared from the books, the period it covered is probably sound.
• If nothing was ever reconciled, start at the beginning of your current fiscal year, or at the start of whatever period you still owe a return for.

It helps to know how long you need these records anyway. The CRA says business records must be kept for six years from the end of the last tax year they relate to, and if you file an income tax return late, for six years from the date you file it. Whatever you gather during a catch-up is worth keeping in one organized place. Our guide to CRA receipts and record keeping covers what to hold on to.

Gather everything before you start entering

The most common reason a catch-up stalls is starting to categorize before all the paperwork is in hand. You end up guessing, then redoing it. Collect these first:

• Bank statements for every business account, for every month in the gap.
• Credit card statements, including any personal card you used for business purchases.
• Loan and line of credit statements, so interest and principal can be split properly.
• Payment processor reports (Square, Stripe, PayPal, e-transfer records), because deposits from them are often net of fees.
• Sales records: invoices you issued, or your point-of-sale reports.
• Receipts and bills for expenses, especially anything you paid in cash.
• Payroll records, if you have employees.
• Your last filed GST/HST returns and any letters from the CRA.

Most banks let you download past statements as PDF and transactions as CSV or QBO files. If your bank feed only reaches back a few months, the downloaded files fill the gap.

Work oldest month first, and reconcile as you go

It is tempting to start with this month because it feels most urgent. Resist that. Each month’s closing balance is the next month’s opening balance, so an error in March quietly throws off every month after it.

For each month, in order

1. Import or connect the transactions for every account.
2. Categorize them. Use the same categories every month so your reports compare cleanly. Watch for owner draws and personal spending, which are not business expenses.
3. Match receipts and invoices to the transactions. A deposit should tie to a sale or invoice; a purchase should tie to a receipt.
4. Record GST/HST separately on sales and on purchases where you were charged it, if you are registered. This is what your returns are built from.
5. Reconcile every account to the statement. The ending balance in your books must match the ending balance on the statement, to the cent.
6. Only then move to the next month.

When a month will not reconcile

A month that is off usually comes down to one of a handful of things:

• a transaction entered twice (once from the bank feed, once by hand);
• a transfer between your own accounts recorded as income or an expense;
• processor deposits recorded at the gross amount instead of net of fees;
• a cheque or payment that cleared in a different month than it was written;
• the opening balance was never right in the first place.

If the difference matches a single transaction amount, search for it. If it is the same difference every month, the problem is almost always further back.

Deal with missed GST/HST returns

If you are registered for GST/HST and fell behind on the books, there is a good chance a return or two fell behind with them. This part has real deadlines and penalties, so it deserves attention as soon as the books for those periods are reconciled.

You still have to file, even for quiet periods

The CRA’s guide for registrants says to file a GST/HST return for every reporting period, even if you have no net tax to remit and are not expecting a refund. A slow quarter is not a reason to skip one.

What filing late costs

According to the CRA’s GST/HST filing penalties page:

• The late-filing penalty applies when you file after the due date and owe money. It is 1% of the amount owing, plus a quarter of that 1% for each complete month the return is overdue, up to 12 months.
• If you owe nothing or are due a refund, the late-filing penalty does not apply.
• Interest is charged on an overdue balance.
• Ignoring a demand to file carries a separate $250 penalty on top of anything else.
• Filing on paper when you are required to file electronically carries its own penalty: $100 the first time and $250 for each later return.

Electronic filing is now the rule for almost everyone: the CRA requires all GST/HST registrants, except charities and selected listed financial institutions, to file electronically for reporting periods that begin in 2024 or later.

Do not forget the credits you missed

Catching up is not all bad news. If you paid GST/HST on business purchases and never claimed it, those input tax credits may still be recoverable. For most registrants, the CRA says ITCs must be claimed by the due date of the return for the last reporting period that ends within four years of the period they could first have been claimed. Some larger businesses and financial institutions have a shorter two-year limit.

When to bring in an accountant

If you have gone several years without filing, received a demand to file, or think income was left off returns, talk to an accountant before you file anything. The CRA runs a Voluntary Disclosures Program that grants relief case by case to people correcting errors or omissions in their tax filings, and whether it fits your situation is a question for an accountant. What we do is get the books accurate so whoever files, or advises you, is working from real numbers, and we can act as your authorized CRA representative while that happens.

For straightforward catch-up filings on reconciled books, our GST/HST filing service covers preparing and filing the returns.

Do it yourself, or hand it off?

Plenty of owners catch up their own books. It is a reasonable choice if:

• you are a few months behind, not a few years;
• your bank feeds are connected and the statements are all available;
• you have one or two accounts and not many transactions;
• there is no payroll or GST/HST to sort out.

It is usually worth handing off when:

• you are more than a few months behind, or a fiscal year-end has passed;
• statements or receipts are missing and need tracking down;
• accounts will not reconcile and you cannot find why;
• GST/HST returns or payroll remittances are overdue;
• the time it would take you is time you would otherwise spend earning.

How our catch-up work runs

Our catch-up bookkeeping is quoted per project. Before any work starts, we review your records and give you a quote with the expected hours, cost and timeline, so you know what you are agreeing to. We work in QuickBooks Online, Xero and Sage, and use AutoEntry to capture receipts and bills. If you are not sure how big the job is, the online estimate takes about three minutes.

Stay caught up once you are current

The catch-up is the hard part. Staying current is mostly routine:

• Reconcile every month, within a couple of weeks of the statement date. One month takes far less time than twelve at once.
• Capture receipts when you get them. Photograph or forward them the same day.
• Keep business and personal spending separate. One business account and one business card make every month simpler.
• Put GST/HST due dates in your calendar for your reporting period, and set the tax aside as you collect it.
• Look at your reports monthly. A profit and loss you actually read catches problems early.

If you would rather not carry that routine yourself, our monthly bookkeeping packages start from $150 a month plus applicable taxes, and include reconciliations, reporting and, depending on the package, GST/HST filing and payroll. The final fee follows a review of your records and a signed engagement agreement.