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Accounting Basics Part 5: QuickBooks Bank Reconciliation

Last week’s accounting topic was all about entering transactions into QuickBooks, and this week builds on that topic by helping you complete a QuickBooks bank reconciliation. A bank reconciliation is where you take your bank statement for a given account and make sure all transactions are entered into QuickBooks. I will take you through all of the steps you need to do to reconcile your account at the end of the month, troubleshoot when balances don’t match up, and read and understand your reconciliation summary and detail reports.

Reconciling your Account

  1. Whether you enter your transactions on a daily or weekly basis, or wait until the end of the month, the first step to reconciling your account is entering all of your transactions. If you have waited until the end of the month and you have your bank statement, go ahead and enter the transactions that have not been entered already. Enter each transaction by date, vendor, amount, account, and a memo if needed.
  2. Enter any checks or deposits that have been written or received as of the statement date but have not yet cleared the bank. This is an important step that adds value to your reconciliation and Profit & Loss statement for the month as it ensures that all income and expenses have been allocated to the correct month.
  3. Next is to begin the reconciliation. To get to the reconciliation, you can go to Banking -> Reconcile, or right click on the account on the chart of accounts and choose reconcile, or right click anywhere in the check register for that account and choose reconcile. This will open up a window that will provide you options for the reconciliation including account, closing date, opening balance, closing balance, interest earned, and service charges (as shown below).
  4. Choose the correct account to reconcile, enter the closing date as appears on your bank statement, make sure the opening balance is the same as your opening balance on the statement (this may be off if you entered transactions for prior months after the last reconciliation, so it may be ok if this is off), and enter the closing balance as shown on your bank statement. If you have not already entered your service charges or interest earned, you can do so here, only make sure that the correct accounts are mapped for these items. When this is done, click continue.
  5. What shows up next is the reconciliation screen. Depending on how your bank statement is laid out, you can sort the transactions by date or check number. I find it helpful to sort by check number so that I can keep my electronic transactions and checks separate. You then go through your statement and match the transactions on the statement with those on the reconciliation screen. Helpful tip here: Expenses/Withdrawals are on the left side, Income/Deposits are on the right side. A key part of this is verifying the date, payee, and amount of each transaction. This is a chance for you to catch errors in your data entry. When you are done, it should look something like this:
  6. A good practice is to check off each transaction on the bank statement you have while you check off each item in QuickBooks. This will catch double-entries and help you match up each transaction.
  7. Keep in mind that some transactions may not have cleared yet, but these checks were written on the dates and the deposits were received, so they need to be recorded. If all the transactions match and the “Difference” in the lower right hand corner is “0.00″, then great, go ahead and click “Reconcile Now.” However, this is not always the case. If the difference is anything other than 0.00, then read below to troubleshoot and try and correct the error.

Troubleshooting a Reconciliation

Here are some helpful steps to review if you have gone through the reconciliation and it doesn’t match up. These are in the most basic order to catch the most common errors first before digging deeper.

  1. Verify the Deposits and Payments Totals: The lower left portion of the reconciliation screen shows the total deposits and payments. Most statements provide a total for deposits and payments. Find where the difference is to help you figure out where the error lies. If both are off, then you know you have an error in both areas; however, keep in mind that if you have correcting transactions or opening balances, these numbers may not ever match the bank statement, so this is not a sure catch.
  2. Check the number of transactions in deposits and payments as this can let you know whether you have a missing transaction or too many transactions.
  3. Verify Beginning Balance: you should have checked this in the previous section, but verify this again and make sure you don’t have any incorrect entries entered after you reconciled the statement last month. If this is off, you should see the transactions precleared in the reconciliation. Double-check to make sure this is correct and, if not, remove the transactions.
  4. Check the difference number or the totals for deposits and payables and see if the sum of the digits adds up to 9. Lets say your difference is a positive $27.00. The reason for this could be that you had an expense that should have been $63.00, but instead you made a mistake and transposed the digits when you entered it to $36.00 (63 minus 36 = 27). This is a common error in entering data, and hard to catch when you are looking at a lot of numbers in a reconciliation. By the total of the difference (.27, 2.70, 27.00, 270.00, etc), you can also determine if the mistake was made in cents, dollars, or hundreds of dollars, which is also helpful.
  5. Interest Income and Service Charges – double-check these balances to make sure you have entered them only once (if they have balances in the bottom right, then they shouldn’t be in the payments and deposits to clear).
  6. Have you fixed it yet? If not, don’t worry, those were just a few things to look for… keep reading and we will dig a little deeper.
  7. “Unmark All” – yes, it is time to check that button in the middle of the screen to unmark all of the transactions and start from the beginning. This time, pay very close attention to the amounts of each transaction that you clear. This step is sometimes the fastest way to uncover the problem transaction and correct the error… start over and go more carefully.
  8. Previous Reconciliation Report – Reports -> Banking -> Previous Reconciliation Pull up this report, select the account, under Type of Report select “Both,” and “Transactions cleared plus any changes made to those transactions since the reconciliation.” Display the report and review it against last month’s reconciliation and look for differences. This is where you will most likely find how your beginning balance is off and it may clue you into a deleted or additional transaction that is messing everything up!
  9. Run a QuickReport on the account for that month. From the Chart of Accounts, right-click on the account and select QuickReport: (Your Account Name) as shown below:

    Take this QuickReport and filter it for cleared transactions, checks, deposits, date ranges, etc. and try to find the error.
  10. Bank Error – crazy as it might sound, the bank may have indeed made an error in your account. This happens every so often and you should be able to isolate such an error down to one or two transactions and give your bank a call and have them fix it up for you. What a relief! You aren’t crazy after all! Well, we won’t jump to conclusions…
  11. Failing in all of the above, if the difference is small enough, you can reconcile your statement and allow QuickBooks to make an adjusting entry for you for that amount. If it is off by under $10, it may just be easier to go this route then spend another hour of your time trying to figure it out. Just make sure you start next month fresh and get next month right.
  12. Still want more? Well get in touch with me and I will work with you to figure it out, and if I do I will come back and edit this post with anything new that I find. These have been the most helpful areas to troubleshoot in my experience and I hope they save you time and energy as well!

Reconciliation Reports

So you have reconciled your account and clicked the “Reconcile Now” button, but there is one more step to your QuickBooks Bank Reconciliation – your reconciliation reports. I like to print my reports to PDF (see my Tools and Resources page under Business Formation and Management -> CutePDF), but whether to PDF or hard copy, it is good to keep a record of a successful reconciliation. This is certainly helpful when you run into problems next month and need something to check back to (see step 8 above). So what do these reports tell me?

Reconciliation Summary

The reconciliation summary is an overview of the reconciliation and shows the beginning balance, cleared deposits and payments, the cleared balance (matches your bank statement balance), the totals for the transactions that did not clear, and the ending balance that will match your bank balance on the Balance Sheet for the reconciliation date.

Reconciliation Detail

The reconciliation detail provides details of every transaction involved in the reconciliation. This report is what you will use to dig into each transaction and understand exactly what the reconciliation is telling you. The uncleared transactions section is important to review to make sure there aren’t any aging checks that haven’t cleared. There shouldn’t be any deposits greater than a week in this section. If there are, you should follow up to see why a deposit is taking a week to get to the bank or why a check is outstanding for longer than a month.

Wrapping up!

So, that is the review of the QuickBooks bank reconciliation! Let me know if you run into any issues with running this for yourself. If you have benefited from this or other articles I have written here, feel free to let others know about the resources here through connecting with me or sharing the articles through the social links above!

Keep Reaching!

Mark

 

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