Why is bank reconciliation important?
The cash in your bank account is your most liquid asset and one of the most vulnerable to fraud, theft and accounting mistakes. Regular bank reconciliation allows you to:
- Catch unauthorized transactions by criminals, employees or vendors.
- Catch errant transactions or errors in your books. Ongoing blunders – either at the hands of your own accounting staff or by external institutions – can exert unnecessary pressure on your cash flow and should be solved promptly.
- See how the processing time for financial transactions affects your cash flow.
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How often should you engage in bank reconciliation?
At minimum, we suggest that you reconcile your books once per month. This process which sounds extremely time consuming doesn’t have to be provided that you use online accounting software, such as the popular all new QuickBooks, and allow the software to access your bank records. Without such a solution, bank reconciliation can be tedious.
Later in this article, we walk you through the process of doing bank reconciliation in the all new QuickBooks.
Tip: Do Not Have The Same People Doing The Reconciliation That Are Issuing Checks And Making Payments
In order to use bank reconciliations as an effective method of protecting your cash assets from internal fraud, it’s vital that the employees tasked with conducting bank reconciliations are not the same people who are responsible for authorizing bank transactions or the issuing of checks.
This Is One Place Where You Should Be Directly Involved
Small business owners would also be well advised to take a hands-on approach to bank reconciliation. Examining your transactions in the context of a bank reconciliation provides a detailed perspective of your day-to-day business and will help you identify the peaks and troughs in your cash flow.
Why Your Bank Statements And Accounting Records Might Not Match Even If There Are No Errors
Often, the balance listed on your bank statement will not match the figures listed in your internal books. There are a few reasons for this.
Mismatches Due To Deposits In Transit
If checks you’ve issued through your accounts payable department are yet to be cashed by your creditors – known as outstanding checks – then funds will remain in your bank account while your internal bookkeeping will likely show the amount as paid, thus creating a discrepancy in the comparative figures. Likewise, funds recorded as received by your accounts receivable department may still be awaiting bank clearance at the time your statement is issued and may not be reflected in your bank statement despite appearing in your internal balance sheet. This is referred to as a deposit in transit.
Bank Fees And Variable Interest Rates
Other explanations for mismatched figures when you do bank reconciliation may be that bank fees automatically debited from your account may not be recorded on your balance sheet, and the same could be true of automatically deducted bank loan repayments that fluctuate with interest rates.
Conversely, interest credited to your bank account may similarly not be reflected in your own bookkeeping and any unexpected credits from suppliers will have the same effect.
Bank reconciliation is the process of making the above adjustments to your balance sheet, and is successfully completed when your adjusted balance matches your bank account balance.
How To Do Bank Reconciliations With QuickBooks
If the thought of finding the time or resources to conduct detailed monthly bank reconciliations is already spiking your stress levels, the good news is that the all new QuickBooks streamlines the process to save you time and money.
For starters, the simple act of keeping your accounting records digitally organized in a central location already makes bank reconciliation infinitely easier.
You can accurately track every incoming and outgoing dollar with QuickBooks, and having that data at your fingertips when it comes time for your monthly bank reconciliation already puts you ahead of the game.
More importantly however, the all new QuickBooks gives you the option to hide transactions you’ve recorded in your internal system after the end date of the bank statement in question. This allows you to instantly view the completed transactions and makes it much easier to identify outstanding checks, deposits in transit and any bank fees or credits.
You can also sync QuickBooks with your bank accounts and authorize the software to automatically enter and categorize transactions. You can find a link on how to do this here.
Reconciling bank statements with the all new QuickBooks is as easy as selecting the ‘Banking’ tap in the top menu bar, then clicking ‘More’ and finally ‘Reconcile’.
This will take you to the reconciliation screen where you simply choose the account you want to reconcile and press ‘Reconcile Now’.
Enter the bank statement start and end dates along with the beginning and ending balances for that period along with service charges and interest credits as reflected in your bank statements.
Hit ‘OK’ and you’ll be taken to a split-screen list of transactions with ‘checks and payments’ displayed on the left and ‘deposits and other credits’ displayed on the right.
Ensure you check the box beside ‘hide transactions after the statement’s end date’ at the top right of your screen to make the process much easier.
Now, refer to your bank statement to verify which checks and deposits have cleared and click the corresponding box to mark each listed transaction as cleared in QuickBooks.
TIP: Cleared transactions are all those transactions that are listed in your bank statement. Transactions listed in QuickBooks that don’t appear on your bank statement are most likely still in transit and, outstanding payments notwithstanding, will appear as cleared transactions in your next bank statement and thus will be reconciled in QuickBooks at that time.
The all new QuickBooks keeps a running total of your cleared — or reconciled — transactions at the bottom of the display window, and once you’ve correctly identified all the transactions, your balance difference should equal $0 .
This is a successful bank reconciliation and you’re now ready to click the ‘Finish Now’ button which will complete the reconciliation and display a list of reconciliation reports. Simply click on the most recent report to print it.
And the best part is that if you don’t have time to complete the entire reconciliation in one sitting, QuickBooks automatically saves your progress so it’s easy to pick up the task at another time.
What To Do When An Amount Does Not Reconcile
However, if you get to the end of the process and your QuickBooks balance difference at the bottom of your screen fails to equal $0, there are a few common mistakes that may be causing the discrepancy:
- An error was made in recording bank fees, interest credits or loan repayments in QuickBooks. Check the figures you entered into QuickBooks against those listed in your bank statement.
- A previously reconciled transaction has been unchecked or deleted. Refer to your bank statement and ensure all listed transactions have been marked in QuickBooks as cleared.
- Checks or deposits that are listed in your bank statement are missing in QuickBooks. Sort your QuickBooks transactions by date, then cross check against your bank statement to find any missing transactions. Any transactions that are missing in QuickBooks will need to be entered into the system before you can successfully complete a bank reconciliation.
Where You Can Look For More Advice
If you run into any problems or have any specific questions, Intuit’s official community forum and QuickBooks support center are both excellent searchable resources and contain vast amounts of troubleshooting knowledge across a large range of questions and issues pertaining to running bank reconciliations in QuickBooks.
If you don’t already have an account with the all new QuickBooks you can get a 30 day free trial here.