How do I prepare accounts if I’ve never kept proper records?

Why this situation is common (and fixable)

If you’ve never kept proper records, you’re not alone. Many people start a business, side hustle, freelance career, or property rental with energy and good intentions, only to realize months (or years) later that the paperwork never quite happened. Maybe you relied on a personal bank account, lost receipts, mixed cash and card transactions, or simply didn’t know what you were supposed to keep. When it comes time to prepare accounts—whether for a tax return, a mortgage application, a grant, an investor, or just peace of mind—it can feel overwhelming.

The good news is that accounts can usually be reconstructed well enough to file accurately and understand how the business is performing. The process is not mysterious, but it does require patience and a methodical approach. The aim isn’t to create a perfect record of every moment in the past; the aim is to produce reasonable, supportable accounts based on the evidence you do have, and to put a system in place so you never have to do this again.

This article walks through how to prepare accounts when your records are messy or incomplete, from gathering data to rebuilding income and expenses, estimating where necessary, and finishing with a clear set of accounts and next steps. You can do much of this yourself, and you can also use an accountant more effectively if you arrive with organized information and clear notes.

What “preparing accounts” actually means

Before you start sorting paper and downloading bank statements, it helps to understand what you’re trying to produce. “Accounts” can mean different things depending on context, but in everyday terms it usually includes:

1) A summary of income you earned during a period (often a tax year).

2) A summary of business expenses you paid during that period, grouped into sensible categories.

3) A calculation of profit or loss (income minus expenses).

4) A view of what you own and owe at the end of the period (sometimes), such as cash in the bank, unpaid invoices, loans, or stock.

5) Supporting records that show how you arrived at those numbers (bank statements, invoices, receipts, mileage logs, and notes).

For many sole traders, freelancers, and small side businesses, the first three items are the critical core. For limited companies and larger operations, you may also need a balance sheet (assets and liabilities), plus more formal formatting. If you don’t know which you need, you can still start the reconstruction work; the same raw data supports both simple and formal accounts.

Start with the “accounting period” and the rules you’re working to

The first practical step is deciding the period you’re preparing accounts for. It’s usually:

• Your tax year (for personal self-employment reporting), or

• Your company’s financial year (for companies), or

• A custom 12-month period needed by a lender or investor.

Write the start and end dates at the top of a document. Everything you collect should fall within those dates. If you’re missing months, highlight them now; it’s easier to know the gaps upfront than to discover them mid-way through calculations.

Also be clear about whether you’re using cash basis or accrual accounting. Many small businesses use cash basis, meaning you count income when you receive it and expenses when you pay them. Accrual accounting counts invoices when issued and bills when incurred, regardless of payment date. If you’re unsure, cash basis is often the most straightforward for reconstructing from bank data, but your situation may require accrual. If you have an accountant, ask what basis you should use; if you’re doing it yourself, pick one consistent method and stick to it, keeping evidence of what you did.

Gather what you already have (even if it’s messy)

Reconstruction is much easier when you start by collecting everything in one place. Don’t sort yet. Just gather. Create a folder on your computer (and a physical box if needed) and put in:

• Bank statements (business and personal accounts used for business).

• Credit card statements used for business spending.

• Any invoices you sent to clients or customers.

• Any bills you received (software subscriptions, phone, internet, rent, utilities, suppliers).

• Receipts and confirmation emails (online orders, travel, tools, equipment).

• Payment processor reports (PayPal, Stripe, Square, Etsy, eBay, Amazon, Upwork, Fiverr, etc.).

• Cash sales records (if any), till receipts, or a notebook of takings.

• Any contracts, proposals, or job logs that indicate what you did and what you charged.

• Mileage evidence (calendar entries, maps history, diaries) if you drove for work.

• Evidence of business assets purchased (laptop, camera, tools) and their dates.

Even partial information is useful. A single email confirming a purchase can substitute for a missing receipt, and an invoice number can help you match payments in the bank.

Separate personal and business activity (even if you used one account)

If you had a dedicated business bank account from day one, great. If you didn’t, you can still separate business transactions from personal ones. This step is crucial because your accounts need to reflect business activity, not your groceries and personal bills.

Export all transactions for the period from any accounts you used. Many banks let you download CSV files. If not, download PDFs and consider manually keying the information into a spreadsheet. If you used more than one account, export all of them.

Then create a “master transaction list” in a spreadsheet with columns like:

• Date

• Description

• Money in

• Money out

• Account (if multiple)

• Category

• Business/personal (flag)

• Notes

Your job is to mark which items are business-related. For mixed accounts, this can take time, but it’s manageable if you work month by month. Use your memory, invoices, and emails to decide. If you truly can’t tell what a transaction was, flag it as “unknown” and return later. You’ll often identify patterns as you go.

Rebuild income first (it’s usually simpler)

Income is often easier to reconstruct than expenses because it tends to be less frequent and more memorable. Start by listing all sources of business income:

• Client payments (bank transfers, card payments)

• Cash takings

• Marketplace sales payouts

• Tips or commissions

• Refunds that relate to business purchases (these usually reduce expenses, but track them)

From your bank transactions, highlight every incoming payment that looks like revenue. Match each one to an invoice or job where possible. If you don’t have invoices, you can create a simple sales log that records:

• Customer name (if known)

• Date paid

• Amount

• What it was for

• Payment method (bank, PayPal, cash)

For payment processors and platforms, download their statements or reports. These often show gross sales, fees, refunds, and net payouts. Be careful: the bank deposit might be the net amount after fees. For accounts, you may need to record gross income and fees separately, depending on your accounting method. If you’re using a simple cash basis, you may record the net receipts as income and the fees as expenses only if they are separately visible. However, it’s usually clearer to show gross income and then fees as an expense, because it reflects the true scale of sales.

If you received cash, you must do your best to estimate cash income honestly. Use any evidence you have: appointment calendars, order books, messages, or stock records. It’s better to create a reasonable estimate supported by notes than to ignore cash entirely. Write down the method used to arrive at the estimate.

Then rebuild expenses (this is where the work is)

Expenses are often numerous and scattered. The goal is not to label every coffee perfectly; it’s to classify business spending into sensible categories and identify any major missing areas. Start by deciding on categories that match your type of work. Common categories include:

• Cost of goods sold / materials / stock

• Subcontractors / freelancers

• Software subscriptions

• Advertising and marketing

• Website costs / hosting / domains

• Phone and internet

• Office supplies

• Travel (public transport, hotels)

• Motor expenses or mileage

• Rent / workspace costs

• Insurance

• Professional fees (accountant, legal)

• Training and books

• Repairs and maintenance

• Equipment (assets) and small tools

• Bank charges and payment processing fees

Go through your bank and card transactions and assign categories. Don’t get stuck on perfect categorization. If you can’t decide between two categories, pick one and keep consistent. Consistency matters more than precision for minor items.

How to deal with missing receipts and incomplete evidence

Missing receipts are common. What matters is being able to show that an expense was business-related and actually incurred. Here are practical substitutes and strategies:

Use bank statements as a baseline. A bank statement shows the payee and amount. On its own it may not prove the business purpose, but paired with notes it helps.

Search your email. Online purchases often generate confirmation emails, invoices, and shipping notices. Search by merchant name, amount, or date.

Download invoices from vendor accounts. Many suppliers (software services, marketplaces, mobile providers) let you log in and download invoices even long after the purchase.

Use calendar entries or project notes. If you traveled to a client meeting, a calendar event plus a train ticket booking email can support the expense.

Create a “missing receipt log.” For each missing receipt, note the date, merchant, amount, and business purpose. Be honest and specific. “Supplies for client project X” is better than “business expense.”

Avoid inventing expenses. If you have no evidence that something happened, don’t include it. Estimates are sometimes necessary (especially for cash and mileage), but they should be based on a reasonable method and documented clearly.

Mileage and vehicle costs: pick one method and document it

Driving-related deductions can be valuable, but they can also attract scrutiny if they’re poorly documented. Generally, you’ll use one of two approaches:

Mileage method: You claim a rate per business mile. This requires a mileage log or a reconstructed record showing business journeys, dates, and distances.

Actual cost method: You claim a business portion of actual vehicle costs (fuel, insurance, repairs, etc.), often based on a percentage of business use. This requires more records and a defensible business-use estimate.

If you haven’t kept a mileage log, reconstruction is still possible. Use your calendar, client addresses, delivery routes, and typical travel patterns to estimate business mileage. Create a spreadsheet that lists trips with start point, destination, reason, and miles (you can use mapping tools to estimate distances). The key is that your reconstruction should look like a genuine attempt to capture reality, not a round number with no explanation.

Handling cash properly (especially if you mixed it with personal spending)

Cash is the hardest part of messy accounts because it can vanish into everyday life. The best approach is to create a cash summary that tracks:

• Cash received from customers

• Cash paid into the bank (if any)

• Cash spent on business expenses (if any)

• Cash drawings (cash you kept for personal use)

If you took cash and spent it on business items without going through your bank, try to find evidence: receipts, photos of receipts, or vendor records. If you can’t, those costs may be hard to claim. Going forward, consider paying cash into the bank and paying expenses from a card, because it creates an automatic audit trail.

Identify and treat “owner payments” correctly

When you use a personal account for business, you will likely see transfers between accounts. Not all transfers are income or expenses. Some are simply you moving money around. Common owner-related items include:

• Money you put into the business to fund it (owner contributions)

• Money you took out for personal use (drawings)

• Transfers between your own accounts

These should generally not be recorded as business income or business expenses. Instead, track them separately. If you’re preparing simple profit-and-loss accounts, you can often exclude these from the profit calculation entirely, as long as you haven’t accidentally counted them as revenue or costs.

Equipment and big purchases: expense or asset?

If you bought equipment—like a laptop, tools, machinery, a camera, or furniture—don’t automatically treat it as a normal expense. In many accounting systems, significant items used over multiple years are treated as assets, and their cost is spread over time (depreciation) or claimed under special capital allowance rules. The correct treatment depends on local tax rules and the nature of the purchase.

Even if you don’t know the exact treatment, you should still identify these items in your reconstruction. Create a list with:

• Item description

• Purchase date

• Cost

• Where you bought it

• How it is used in the business

This makes it easier to handle properly later and avoids accidentally “double counting” in different categories.

Work backwards from what you can prove

A helpful mindset is: start with the most reliable evidence and expand outward. Typically, your most reliable sources are bank statements, card statements, and platform reports. Build your accounts primarily from those. Then layer on:

• Invoices sent and received

• Email confirmations

• Paper receipts

• Notes and reconstructions (mileage, cash)

This approach keeps you anchored in reality and reduces the risk of guessing. If you later find a receipt that wasn’t captured in the bank transactions (for example, cash spending), you can add it with a note.

Create a simple profit and loss statement

Once income and expenses are categorized, you can produce a basic profit and loss (P&L) statement. You can do this in a spreadsheet using a pivot table or simple sums. The structure is:

Total Income

Minus: Total Expenses (broken down by category)

Equals: Net Profit (or Loss)

Don’t underestimate how powerful this is. Even a rough P&L can reveal if you’re charging enough, where money is going, and whether your business is sustainable. It also gives you a foundation for tax reporting and future planning.

If you need a balance sheet, build it from a short checklist

Not everyone needs a balance sheet, but if you do, it can still be reconstructed. A balance sheet is a snapshot at the end of the period. Start with:

Assets

• Bank balances (end-of-period statements)

• Money owed to you (unpaid invoices, if using accrual)

• Stock or inventory on hand (if applicable)

• Equipment and assets (at cost, then adjusted depending on method)

Liabilities

• Credit cards and loans outstanding

• Bills you owe (unpaid supplier invoices, if using accrual)

• Taxes owed (if known)

Equity

• Owner contributions and accumulated profits (for sole traders this is often implicit)

If this sounds complex, focus on the basics: bank balances and major debts. Many small businesses can prepare a workable set of accounts without a detailed balance sheet, depending on the purpose.

Check for common errors that make accounts unreliable

When reconstructing accounts, certain mistakes are extremely common. Do a quick review for these before you finalize:

Double-counting income. This happens when you record both the gross platform sales and the net bank payouts as income. Make sure you understand whether you’re recording gross receipts with fees as an expense, or net receipts only, and be consistent.

Including transfers as income. Transfers between your own accounts are not revenue. Similarly, loans are not income in the profit sense, even though they are cash coming in.

Missing fees. Payment processing fees, bank charges, and platform fees can add up. Platforms often deduct them before payouts; make sure they’re reflected somewhere.

Mixing personal and business expenses. If an expense was personal, don’t include it. If it was mixed-use (like a phone plan), include only the business portion and note how you estimated it.

Ignoring refunds. Refunds to customers reduce income; refunds from suppliers reduce expenses. If refunds are present, ensure they’re netted properly.

Forgetting tax-related items. Depending on your system, you may need to separate sales taxes collected, payroll items, or other statutory amounts. If you’re unsure, keep clear totals and seek professional guidance.

Make your numbers explainable: notes matter

When you’ve reconstructed accounts from imperfect records, the most important thing you can add is clarity. Create a short “method notes” document that explains:

• The period covered

• The sources used (banks, platforms, invoices)

• The accounting method (cash basis or accrual)

• How you treated platform fees

• How you estimated anything (cash income, mileage, mixed-use costs)

• Any known gaps (missing statements, missing months)

This protects you. It also helps an accountant, a lender, or a future you understand what was done and why. Accounts aren’t just numbers—they’re a story of how the business operated during that time.

When to involve an accountant (and how to make it worth the cost)

You can do a lot yourself, but there are moments when professional help can save money and stress. Consider involving an accountant if:

• You’re preparing accounts for a limited company or a complex structure.

• You have significant cash activity or poor evidence for key items.

• You’re dealing with inventory, multiple income streams, or international sales.

• You suspect you may have underreported income or missed key obligations.

• You need accounts for lending or investment and they must look formal.

If you hire help, don’t hand over a chaotic pile and hope for magic. You’ll pay more, and you’ll still be asked questions. Instead, do the groundwork:

• Provide downloaded statements in order.

• Provide your categorized transaction list.

• Provide your income summary and platform reports.

• Provide your notes about estimates and uncertainties.

This turns an expensive “forensic cleanup” into a more predictable review and finalize process.

What if you discover mistakes from past years?

Sometimes reconstruction reveals that earlier tax filings were incomplete, that income was missed, or that you claimed something incorrectly. That can be worrying, but it’s better to know than to ignore it. The right approach depends on your local rules and how significant the issue is. In general, you should:

• Document what you discovered and why it happened.

• Quantify the difference as best as you can.

• Seek professional advice if the amounts are meaningful or if you’re unsure of the correct process.

Trying to “fix” a historic issue by quietly adjusting a later year can create bigger problems. If you’re in doubt, get guidance. The goal is to be accurate and transparent, not perfect.

Turn the clean-up into a system you can actually maintain

Once you’ve done the hard work of reconstructing accounts, the last step is making sure you never repeat it. The best system is one you will use consistently, not the fanciest one. Here are simple habits that work:

Open a separate business bank account. Even if you’re a sole trader, this is one of the biggest improvements you can make. It instantly separates business from personal transactions.

Use one card for business. Keep spending in one place so your statements tell the story automatically.

Capture receipts immediately. Use a phone app or a dedicated email folder. A quick photo is better than a promise to file later.

Invoice consistently (even if you’re paid fast). Invoices create a record and help you track who paid what and when.

Do a monthly “money hour.” Once a month, reconcile transactions, label categories, and upload missing receipts. One hour monthly beats ten hours in panic later.

Track mileage as you go. A simple note in your calendar or a mileage app is far easier than reconstruction.

Keep a basic chart of categories. Use the same categories every month so your accounts are consistent year to year.

A practical step-by-step plan you can follow this week

If you’re staring at a mountain of mess and need a concrete plan, here’s a realistic sequence. Adjust to your situation, but keep the order:

Day 1: Set the scope. Write down the exact period you need accounts for. List every bank account, card, and platform used.

Day 2: Download everything. Export statements and platform reports. Save them in clearly named folders by month.

Day 3: Build the master transaction list. Combine exports into one spreadsheet. Don’t categorize yet if it slows you down; just get it all in.

Day 4–5: Identify income. Mark revenue items, match to invoices or jobs, and create a sales log. Pull out platform fees and refunds.

Day 6–7: Categorize expenses. Work month by month. Create a missing receipt log. Identify big purchases separately.

Next: Fill the gaps. Reconstruct mileage and cash as best as possible, using evidence and notes.

Finish: Produce a P&L and method notes. Summarize totals, review for common errors, and write down assumptions.

By the end of this process, you should have accounts that are defensible, understandable, and useful. They may not be perfect, but they will be far better than nothing, and they will set you up for a smoother future.

How to know your accounts are “good enough”

When records are imperfect, people often ask: “How do I know this is acceptable?” A helpful standard is whether your accounts are:

Complete enough to cover the period. You have statements or credible records for all months.

Supported by evidence. Most figures can be tied back to bank transactions, platform reports, invoices, or receipts.

Consistent. You used the same method and categories throughout.

Explainable. If someone asks “why is this number here?”, you can answer with a document, a transaction, or a note about your estimation method.

Not obviously biased. Income isn’t missing while expenses are fully loaded. Estimates aren’t suspiciously round without explanation.

If you meet those standards, your accounts are likely usable for tax filing and decision-making. If your purpose is lending or investment, you may need additional polish and formal presentation, but the underlying data work is the same.

Final thoughts: the real win is the new habit

Preparing accounts when you’ve never kept proper records is a challenge, but it’s also a turning point. Once you’ve reconstructed one period, you’ll understand your cash flow and your profit in a way you probably never have before. You’ll see which clients, services, or products actually pay, and which costs quietly eat your margins.

Most importantly, you’ll be able to replace stress with routine. A simple monthly process, a separate account, and a habit of saving receipts turns accounting from a yearly crisis into a normal part of running your work. Your future self will thank you—and your business will run better because you’ll finally be able to see what’s happening underneath the day-to-day effort.