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 and 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.
Preliminary Steps
Your banking or credit card company should send you a statement every month.
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, you can begin the reconciliation process.
QuickBooks Online allows you to connect to your bank so that transactions download to the site regularly.
This system makes reconciliation quicker and easier as you don't have to add most information manually.
There may be exceptions for items such as interest and service fees, as these may not automatically enter the system. Be careful, though, that these entries are not duplicated.
Account Reconciliation
Once all of your transactions are downloaded, you are ready to begin matching or adding.
QuickBooks Online uses several options, including matching, adding, recording as a transfer or credit card payment, or categorizing.
- Matching means a corresponding transaction, often a deposit, invoice, or sales receipt accompanying the expense or deposit.
- Recording as a transfer and credit card payments are used 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. You must be certain there is a match in both accounts, otherwise it will make the reconciliation process harder.
- Categorizing is the act of choosing the category to which the expense or income most closely relates.
- Adding is used when the transaction is categorized and is considered completed.
Go through each transaction and choose the appropriate action.
QBO may choose a category automatically, which could be incorrect, so review each transaction. You can also make Rules that assign similar transactions to the same category.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.
- If finance charges and/or interest charge transactions have already been added from Bank Transactions, do not enter them here; this will duplicate them.
- Start reconciling.
- QBO will check all bank transactions added in the date range automatically. Select the bubble to add a transaction to the reconciliation on the statement.
- A $0.00 Difference and a green check mark 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 ensure they are correct. If the beginning balance is off, you may have modified, deleted, or added a transaction after last month's reconciliation.
It is best to look through the transactions next to determine if any of them haven't been cleared. This usually happens towards the end of the month with transactions 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 want a paper copy, print out your reconciliation and staple it to the statement. Keeping a monthly or quarterly file of your reconciliations will ensure the information is readily available.
If you prefer paperless transactions, you can save a PDF of the reconciliation to a folder on the cloud. It will also be saved in your QBO account and easily accessible.
Remember to deal with discrepancies immediately to avoid problems later. Reconciliation performed in every area will safeguard against incorrect reporting and simplify tax time.
Habitual reconciling will keep your records clean and ready at a moment's notice. However, business owners often put off or don't reconcile at all due to time constraints or a 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 ensure your business's financial health.
