I am helping a friend get his books together for his business. It has been running for a year and a half and he has done absolutely no bookkeeping. He has no personal bank account and has just been living out of his business account. My question is does it make sense to just lump all income and expenses together up until now and start proper financial statements from here on out or should I go through his past year thoroughly and create them from scratch?

Because of the IRS you will have to go through from scratch. Hope he has been keeping receipts. You can't do proper financial statements or reporting to the state (if your state requires goods and services tax reported) without.