How to Reconcile Your Accounts (Part I)
If you’ve worked with us for any amount of time, you have heard about the importance of reconciling your business bank and credit card accounts.
Reconciliations are a double-check to make sure that everything you have in QuickBooks went through your bank, AND everything that went through your bank is in QuickBooks.
Now, I already know some questions are running through your mind…
What about this personal transaction I made?
Yep, that one needs to be recorded in your QuickBooks account… all of them…
The way to record those personal transactions depends a bit on the type of tax return you file for your business. When you enter it into QuickBooks, if you file a Sch C on your individual return, you’ll want to choose the category Owner’s Pay and Personal Expenses or Owner’s Draws (they’re the same thing, just named differently).
If you own your business with someone else, you are either filing a Partnership return or a Corporation return. You can categorize the transaction under either Partner Distributions or Officer Distributions, respectively. But it’s important to keep in mind that these distributions accounts must be distributed evenly to each owner based on the percentage of the company they own.
If you own a Corporation solo, then it still goes into Officer Distributions; you just don’t need to worry about it being distributed evenly!
What about this check I entered that hasn’t been cashed yet?
This check will show up on the reconciliation screen as a transaction, but it won’t be “checked” as a transaction that cleared during this time period. And that’s OKAY!
What will happen is this transaction will stay as “open” and will appear on next month’s reconciliation screen. It will continue to show up each month until it clears the bank and is checked off (reconciled).
It’s important to review each transaction that isn’t checked off each month to ensure that it’s an appropriate transaction that you’re waiting to clear. If it’s a debit card purchase or electronic withdrawal, those usually go through right away, so we shouldn’t be waiting weeks for it to go through the bank – Something else must be up.
When do I need to start?
Bank reconciliations build on each other – this is where the beginning balance comes from. So you want to start reconciling your bank accounts at the very beginning of the account.
If you haven’t reconciled your bank statements from the beginning, you may want to consider starting at the beginning now. Although, it depends on how many years have passed and how your tax returns were completed. If your tax returns were completed on your QuickBooks Online data and your bank account is thousands of dollars off, then you may want to reconcile from the start to see where the issue was and amend your tax returns.
However, if your account is balanced even though you haven’t done a reconciliation (WOW!) or there’s a small balance off, then you may be okay entering an adjustment and just starting in the current calendar year.
How do I start?
Determine in which month you are going to start and grab that bank statement – either the paper copy or from your bank’s website. Make sure it’s a monthly bank statement, and not just a detailed list of your transactions. We want to have a document that has a clear start and end date, and also lists the balances at the beginning and ending of that timeframe.
In QuickBooks Online, there are a couple of ways to get to the reconciliation screen depending on the view and release you have:
In Banking/Transactions, select the account you want to reconcile, click on Go to bank register in the middle right, and then Reconcile in the top right corner.
Click the Gear icon in the top right, under the Tools column, click on Reconcile.
In Accountant View (traditional view), hover on Accounting then click on Reconcile.
In Business View (new release), click on Bookkeeping, then click on Reconcile.
On the reconciliation intro screen, first you will want to verify that the Beginning Balance listed in QuickBooks is the same as what is listed on the statement.
Then you’ll enter the Ending Balance and Ending Date listed on your statement.
Click Start reconciling.
If you’re using the bank downloads feature…
Then QuickBooks Online will automatically check off the transactions that cleared the bank based on what was downloaded from the bank, and based on the dates the bank said it was cleared.
Remember that check question from above? Once it clears the bank, QuickBooks will mark it off with the date it cleared to help with the reconciliation process.
If you’re not using the bank downloads feature…
Then you will need to go through each transaction in QuickBooks and check it off manually if you see it on your bank statement.
Since a lot of charges can be similar to each other, I recommend checking off the transaction on your statement as well when you check it off in your QuickBooks. This way you can keep on track and check off the right transactions.
Am I ready to click Finish now?
If there are transactions that aren’t marked as cleared, you will want to go through each one to see why they didn’t go through your bank. Here are some common reasons:
A transaction that will clear the following month
Duplicated deposits – Money deposited into the bank account wasn’t matched properly with Invoice Payments entered directly to the checking account
Duplicated withdrawals – Transfers or credit card payments that aren’t matched to each other and lead to duplicated entries
Incorrect transactions added manually
Bank download interruption so transactions weren’t marked as cleared
If there are any transactions that are incorrect (#2-4), then you will want to remove the incorrect transactions. These incorrect transactions are affecting your bank account balance and the rest of your financials, depending on where this transaction is categorized.
If it’s a duplicated deposit, this is likely duplicating your revenue. If it’s a duplicated withdrawal, it’s likely either duplicating your expenses or affecting the balances of another bank account or credit card.
Once each of these are addressed, and your reconciliation screen shows $0.00 Difference, you can click Finish now.
What if my screen doesn’t have a $0.00 difference?
Then something is off in your bank reconciliation and we’ll need to investigate further. We have a separate article dedicated to resolving bank reconciliation issues! Check out part two of this post, How to Fix Bank Reconciliation Errors.
No assurance is given that the information is comprehensive in its coverage or that it’s suitable in dealing with each individual’s particular situation. Kayla Prusinski does not hold a Certified Public Accountant (CPA) or similar license. This blog article is to provide general information only and does not constitute tax or legal advice, and cannot be used or substituted for tax or legal advice. Savvy Bird Consulting, LLC is not responsible for the implementation or outcomes this material may have.