Forward by Sr. Editor William Murphy
Many, many years ago sitting outside my Banker's inner office and hearing him talk to a well dressed woman who was obviously there because she was having a problem with her account. I wasn't intentionally ease dropping, but I did here him ask her, "when was the last time your reconciled your bank account?" By her reaction she obviously didn't have any idea what he was talking about.
This story illustrates the importance of the lesson that Alicia is about to convey in this weeks article because in all the years since then I have encountered numerous individuals who were attempting to use QuickBooks, Desktop and Online, who had the same reaction when I asked them the exact same question as that banker.
Bank Reconciliations
At the end of every month, your bank sends you statements, either through snail mail or electronically. Personally, I always receive them on paper…because I always have to log in and print them anyway. You’ll see why in a moment.
Reconcile is the feature in QuickBooks Online that matches your bank register to your bank statement. Every month you’ll Reconcile the checking and savings accounts, credit cards, PayPal, and loans.
Reconciling is a necessary process, because it’s your opportunity to double-check for accuracy. You’ll discover transactions entered twice. You’ll find transactions that you entered, but that never happened in the real world. And you may discover bank errors!
To reconcile your QuickBooks Online records against your bank statements:
Select Gear > Reconcile, or Accounting in the left sidebar, then the Reconcile tab.
The Reconcile window opens. Select the account from the drop-down list.
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The Beginning Balance automatically populates last month’s Ending Balance.
Enter this month’s Ending Balance copied from the bank statement.
Enter the Statement’s End Date from the bank statement. Be sure not to use the Payment Due date!
Select OK.
The Reconcile window opens.
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If you have been using Online Banking, sometimes it only takes a few seconds to Reconcile the bank account. Other times…it can take hours.
Your goal is to make the Difference at the very top equal $0.
If the Difference is not $0, the very first thing you should do is double-check the Statement Date and Ending Balance to make sure you don’t have a typo. If you made a mistake, click the Edit Info button and fix it.
If that doesn’t work, compare the Deposits total and the Payments total to your statement to see which column is off.
Hot Tip! You can sort the Reconcile window by Payment or Deposit, Check Number, and Cleared Date. Just click on the heading! Sorting by makes it easy to scan the list for a particular dollar amount, or group transactions that cleared the following month. I frequently switch back and forth to speed up my matching process.
The next step is to look for a transaction or two that equals the Difference. If there is one, check or uncheck the circle, that’s it!
The third troubleshooting step is to click the X Statement ending date link. All of the transactions after the ending date will show up. Look to see if there’s a transaction on this list dated the following month that really should have been in the current date range. If there is, click on the transaction and edit the date to move it into the current reconciliation screen. Finish by checking the Reset statement ending date link again.
If none of these steps work, it’s time to pour through the list looking for transactions that are on the bank statement but not in QBO, or
transactions in QBO that are not on your bank statement. Again, it’s easiest to work off a printout instead of online.
Start by filtering by the Payments or Deposits column that’s off. Then checking all transactions in the using the circle at the top of the list.
Place a check to the right of each transaction that appears on the bank statement. On your bank statement, also put a check there so that you can keep track.
Keep an eye out for transactions that were entered twice, and delete one of them. Note that the transaction may reappear in the Bank Feed, so you will need to Match or Exclude it.
Are there transactions on the statement that aren’t in QBO? Sometimes that happens. Create the missing entry.
Do you have extra transactions that aren’t on the statement?
- If they’re near the statement ending date, they may just not have cleared yet. You’ll see them next month.
- If they’re checks that the payee hasn’t cashed yet, that’s fine, too.
- If they are duplicates of another transaction, decide which is correct, and delete the error.
- If they just plain don’t match anything, keep an eye on them. Determine if they should be deleted. Maybe wait a few months. But any old transactions that aren’t reconciled throw off your bank balance and eventually you want them gone.
When all the transactions on the bank statement are checked, you have no unidentified transactions, and the Difference at the top right is $0.00, select Finish Now.
QBO will show you a Reconciliation Report. You can also find this report in the Reports > All Reports > Accountant Reports > Reconciliation Reports.
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What if your Starting Balance was wrong?
PEBCAK! If your Beginning Balance is wrong, it means you changed a transaction that was previously reconciled.
Don’t panic! It’s very likely that when you start the next reconciliation, the problem will fix itself.
Continue as normal, and keep an eye out for an extra transaction with an old date from a past period. Check it off, and your Difference will equal $0!
If that doesn’t work, you deleted a transaction and didn’t create a new one to replace it. In that case, look at the Reconciliation History list. You’ll see a dollar amount in the last column. Click on it to find out what it was, then add it back to the system.
If that doesn’t work, you deleted a transaction and didn’t create a new one to replace it. In that case, click the “We can help you fix it” link. You’ll see a list of all the changes.
- If you manually changed a transaction in the register from R to C or vice versa, you can toggle that here.
- If you deleted a transaction, you may need to recreate it.
- If you edited a transaction, you may need to put it back the way it was.
Lesson Wrap-up
Many people believe they don’t need to reconcile, because they’re entering their transactions from the Banking Feed. Don’t make this mistake! Your file’s accuracy is only as good as your transaction management, and there are plenty of ways to create discrepancies in your account registers.
If you’re doing a good job through the month, your Reconciliations will only take a few seconds. Don’t skip this step of confirming your accuracy, or your bank balances will be wrong…and so will your taxes!
To see these Reconciliation pro tips in action, check out my ‘Banking Center and Reconciling Course’. Use coupon code IA10 for 10% off!
In upcoming articles, I’ll cover Profit & Loss Statements, the Balance Sheet, and customizing reports.