All businesses need financial statements to represent profit and loss accurately. Additionally, without proper information concerning the balances in checking, savings, money markets, and credit cards, a business owner is bound to overdraw or overcharge an account at some point.
Reconciliation is a way to find mistakes, detect fraud, missed payments, or duplicate entries.
It's also the act of matching all deposits, expenses, charges, and so forth within your accounting software with the statements received from your banking or credit card institution.
The result should be a matching end balance if everything is entered correctly.
Every month your banking or credit card company should provide you with a statement. If your statements are paperless, you can find them by signing in to your account and looking for the reports or statements tab.
Once you have your statement in hand, you can begin the process of reconciliation.
QuickBooks Online allows you to connect to your bank so that transactions download to the site at regular intervals. This system makes reconciliation quicker and easier as you don't have to add most information manually.
There are exceptions for items such as interest and service fees as these may not automatically come into the system. Be careful, though, that these entries are not duplicated.
Once all of your transactions are downloaded, you are ready to begin matching or adding. QuickBooks Online uses a series of options, including matching, adding, or transferring. Matching means there is a corresponding invoice or sales receipt that goes with the expense or deposit. Adding is used when an expense needs to be categorized.
Categorizing is the act of choosing the category that the expense or income most closely relates to. Many times, QBO will choose a category automatically and you can make rules that assign similar transactions to the same category.
Transferring is when money is moved from one account to another, such as from savings to checking or from a checking account to pay a credit card.
Go to the Banking tab to the left of the QBO screen. Choose Banking from the dropdown menu. Here you will see all of the transactions that have come over from your bank or credit card company. On the far right, you will see the options mentioned above.
Go through each transaction and choose the appropriate action.
Once everything is matched, it is time to reconcile.
How to Reconcile
Use the company icon gear at the top right of the QBO screen:
- Select Tools and then Reconcile.
- From the Account dropdown box, choose the account you wish to reconcile.
- From the bank or credit card statement, ensure that the beginning balance matches what is in QBO.
- Add the ending balance and the ending date of your statement.
- Generally, some accounts will have an area to add Service Charges and Interest Earned. Enter those before you begin reconciling and then choose Start Reconciling.
- If there is no option to enter service charges and interest, you can enter those manually, or they may have come over from your bank or credit card company with the other transactions. Continue on to the reconciling screen to determine what needs to be done.
- On the reconcile screen, choose the top right tick box to include all transactions listed. QBO will check all of them to start with, and then you can determine if any should be unchecked.
- A $0.00 balance at the top means everything is balanced. At this point, you can hit Finish Now. Congratulations!
If you see a difference, you are off somewhere but don't panic. First, check the beginning and ending balances to make certain they are correct. If the beginning balance is off, you may have modified, deleted, or added a transaction after last month's reconciliation was done.
It is best to look through the transactions next to determine if any of them haven't been cleared. This is usually transactions towards the end of the month that may have been posted but not cleared.
If you need to leave the screen, choose Save for later. Do some research to locate and correct the problem, and then return to the reconciliation screen.
If you would like to have a paper copy, print out your reconciliation and staple it to the statement. Keeping a monthly or quarterly file of all of your reconciliations will ensure that the information is readily available.
If you feel paperless is better, you can save a PDF of the reconciliation to a folder on the cloud. Additionally, it will be saved in your QBO account and is easily accessible.
Keep in mind that discrepancies should be dealt with immediately to avoid problems later on. Reconciliation performed in every area will safeguard against incorrect reporting and make tax time easier.
Habitual reconciling will keep all of your records clean and ready at a moment's notice. Business owners often put off or don't reconcile at all due to time constraints or lack of confidence in the process and this can be disastrous.
If you are unsure or too busy, hiring a professional bookkeeper or accounting firm will secure the financial health of your business.