Accounting cleanup case study

Messy Accounting Cleanup Case Study (Books Years Behind)

A $30M founder-led company's books had drifted for 3 years — never on accrual basis, missing reconciliations, no prior audit, manual JEs accumulating. Fourteen weeks of forensic cleanup later, the books were current, on accrual, reconciled, and ready for first external audit.

Client profile: Composite case study based on a $30M B2B services company, founder-led with one bookkeeper, on QuickBooks Online. No external audit, no controller, accumulated 3 years of accrual issues, missing reconciliations, unrecorded expenses. New CFO joined and demanded cleanup before any future raise or M&A diligence.

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Company context Before — what was actually broken What Ledger Summit implemented Cleanup mechanics — what gets reconstructed Implementation timeline Measured results

Company context

The client is a $30M founder-led B2B services company on QuickBooks Online. The single bookkeeper had been doing cash-basis bookkeeping for 5 years; expense recognition was when paid, not when incurred; revenue was when invoiced, not when earned. Reconciliations weren't happening monthly. Personal expenses occasionally co-mingled. New CFO joined; first task was to assess and remediate.

Pre-cleanup state: books 3+ years behind on accrual basis; revenue recognition not consistent with ASC 606; AR aging stale; AP aging incomplete; no monthly close cadence; no reconciliations beyond bank cash; no prior audit; no internal controls. Cleanup needed before raise / M&A / loan refinance.

$30M B2B services company
QuickBooks Online
Founder-led; one bookkeeper
Cash-basis bookkeeping for 5 years
No accrual conversion ever performed
No prior external audit
3 years of accumulated cleanup
New CFO mandate: cleanup before raise / M&A

Before — what was actually broken

Cash-basis books with revenue / expense timing wrong
No accrual entries for prepaids, accruals, deferrals
AR aging stale — invoices >180 days unresolved
AP aging incomplete — vendor confirmations needed
Bank reconciled monthly; sub-ledgers not reconciled
Fixed-asset register absent
Personal/business expense co-mingling on credit cards
No documented accounting policies
No prior audit; first audit pending

What Ledger Summit implemented

Forensic accounting reconstruction: 3 years of historical JEs reviewed, accrual conversion applied retrospectively
Accrual conversion: revenue recognition per ASC 606 (subscription contracts on subscription period; services on completion); expense recognition when incurred
Prior-period adjustment: cumulative-effect adjustment to opening retained earnings for prior periods
AR cleanup: invoice-by-invoice review; write-offs documented; aging restored
AP cleanup: vendor confirmations; outstanding bills reconciled; aging restored
Sub-ledger reconciliation: AR / AP / fixed assets / payroll / sales tax all reconciled to GL
Fixed-asset register reconstructed: existing assets, depreciation schedule, opening balance
Personal expense extraction: identified, documented, owner-distribution treated
Accounting policy memo: revenue recognition, expense classification, capitalization thresholds
Close discipline: monthly close calendar with reconciliations, JEs, variance review
Pre-audit pack: PBC list completion, walkthrough memos, control narrative

Cleanup mechanics — what gets reconstructed

Area	Reconstruction approach
Revenue	Per ASC 606: identify performance obligations, allocate transaction price, recognize as services delivered
Deferred revenue	Roll-forward from contract data; reconcile to GL
AR	Invoice-by-invoice review; write-offs documented; aging from invoice date
Prepaids	Catalog all prepaid expenses; amortization schedule
Accruals	Identify expenses incurred but not paid; book at period end
Fixed assets	Asset-by-asset register; depreciation per useful-life policy; opening balance
Lease accounting	ASC 842 if material — separate workstream
Payroll	Reconcile payroll provider to GL; benefits accruals
Sales tax	Reconcile per state; identify under-remitted; remediate (see Avalara case study)
Inventory	Cost flow per chosen methodology; cycle counts; opening balance
Personal expense extraction	Identify on credit cards / GL; reclassify to owner distribution or repayment
Cumulative-effect adjustment	Net adjustment to opening retained earnings for prior periods

Implementation timeline

Weeks 1–2: Discovery: GL review, contract inventory, AR/AP audit, prior-period assessment
Weeks 3–5: Revenue recognition reconstruction; deferred revenue rollforward
Weeks 6–7: AR/AP cleanup; sub-ledger reconciliations
Weeks 8–9: Fixed-asset register; payroll reconciliation; sales tax assessment
Weeks 10–11: Accruals/prepaids/deferrals catalog; opening retained-earnings adjustment
Weeks 12–13: Accounting policy memo; close discipline rollout; first new monthly close
Week 14: Pre-audit pack; walkthrough memos; auditor scoping call

Measured results

Metric	Before	After	Delta
Books currency	3 years behind on accrual	Current and on accrual	—
Sub-ledger reconciliations	Bank only	All sub-ledgers monthly	—
ASC 606 compliance	None	Compliant	—
Cumulative prior-period adjustment	—	$340K to opening RE	—
Personal expense exposure	Co-mingled	Extracted and documented	—
Audit-readiness	No	Yes	—
Monthly close cycle	None	5 days	—

Alternatives considered

Option	Time	Cost	Strengths	Weaknesses
Big-4 cleanup engagement	9–12 months	$320K–$680K	Brand	Cost; over-scoped at $30M
CAS firm cleanup	6–9 months	$120K–$240K	Cost-effective	Variable depth
Hire full-time controller + cleanup	12+ months	$140K+ comp / yr	Permanent	Hiring runway long
Ledger Summit + fractional controller (selected)	14 weeks	$80K–$140K	Right-sized; fast	Maintenance ongoing

When this approach fits

Founder-led companies $5–50M with accumulated bookkeeping debt
Pre-fundraise / pre-M&A diligence
New CFO joining and inheriting issues
First-audit prep
QuickBooks, Xero, or smaller GL where cleanup is feasible
Owner willing to invest in remediation now

Lessons learned

Discovery before reconstruction. Knowing what's broken is half the work; rushing to fix produces re-work.
Revenue recognition first. Cleanup other areas without fixing rev rec produces meaningless trial balance.
Personal expense extraction is sensitive. Document carefully; consult with tax provider on owner distribution treatment.
Establish close discipline before the cleanup is done. Otherwise, the new mess accumulates while you fix the old one.
Auditor scoping call early. Pre-audit pack drives auditor confidence; surprises during fieldwork compound.

Frequently asked questions

How long does messy cleanup take?

12–24 weeks for $5–50M companies depending on years behind, complexity, and revenue recognition issues.

Do we have to restate prior periods?

For tax: typically no (tax basis usually cash for SMB). For financial reporting: cumulative-effect adjustment to opening retained earnings is the standard approach.

What if there's tax exposure from cleanup?

Coordinate with tax provider; identify exposure (sales tax, payroll tax, income tax) and remediate per jurisdiction.

Can we do cleanup while running the business?

Yes — that's the typical approach. Senior accountant or fractional controller leads cleanup; bookkeeper continues current period.

What about the bookkeeper — keep, train, or replace?

Depends on capability. Many cleanup engagements include bookkeeper training; some require replacement with senior accountant.

How do we prevent this from happening again?

Close discipline (monthly close calendar, reconciliations, reviews); fractional controller oversight; periodic external review.

What about the cleanup cost?

$80K–$240K typical for $5–50M companies; depends on years behind and complexity.

Can this support a future audit?

Yes — pre-audit pack and clean books support first audit. Audit fees may be higher in year 1 due to opening-balance work.

What about revenue recognition reconstruction?

For service companies: re-perform per contract; recognize when delivered. For SaaS: subscription period basis. Documented methodology required.

What if there's embezzlement / fraud during cleanup?

Forensic discovery if findings emerge; legal counsel engagement; insurance claim if applicable.

Books behind and pressure mounting?

A 30-minute call walks the state of your books and tells you the cleanup timeline.

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