How to Process Bank Reconciliations in QuickBooks

Welcome to the Fit Small Business QuickBooks Online training course. In this lesson, we cover how to reconcile bank accounts in QuickBooks Online.

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To complete this lesson, you can either watch the video below, read through the step-by-step instructions, or do both. Let’s begin.

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Why Bank Reconciliation in QuickBooks Is Important

Similar to your personal bank accounts, it is important that you reconcile your business bank accounts on a monthly basis. Reconciling is the process of matching the transactions on your bank statement to what you have recorded in your accounting software.

Reconciling your bank accounts regularly helps to ensure:

• Discrepancies are resolved quickly: Any discrepancies between your records and the banks are resolved in a timely manner (e.g., a bank deposit that was posted to the wrong account by the bank).
• Timely notification of any fraudulent transactions: Reconciling your bank account consistently alerts you to fraudulent activity sooner. For example, if you notice transactions listed on your bank statement that you did not authorize, you can notify the bank as soon as possible so they can investigate.

Benefits of Preparing Bank Reconciliations in QuickBooks Online

There are several benefits of preparing bank reconciliations in QuickBooks. First, you can be confident that all transactions on the bank statement are recorded in QuickBooks. Second, your profit and loss and balance sheet reports are automatically updated as you record transactions. Third, transactions are marked cleared in QuickBooks like they are with your bank. Finally, you can generate bank reconciliation reports that show the details of all cleared and uncleared items.

How to Reconcile in QuickBooks Online in 5 Steps

Reconciling your bank account in QuickBooks Online (QBO) can be done in five easy steps. First, navigate to the bank reconciliation tool. Second, select the bank account you want to reconcile. Third, compare the bank statement to QuickBooks to match transactions. Fourth, confirm you have a zero difference. Finally, generate the bank reconciliation report and save it. Be sure to have your bank statement handy before you begin reconciling.

Below are the five steps to bank reconciliation in any version of QuickBooks Online:

1. Navigate to the Bank Reconciliation in QuickBooks Tool

From the home page, click on the gear icon to the left of your company name. In the Tools column, select Reconcile as indicated below:

2. Select the Bank Account to Reconcile

In this step, you need to provide information such as the bank account, ending balance of the statement you are reconciling to, and the bank statement date.

Complete the four fields as indicated below:

A brief description of the fields you need to complete are:

1. Account: From the drop-down, select the bank or credit card account you would like to reconcile.
2. Beginning balance: This field is auto-populated with the ending balance from the previous month’s statement. Tip: If your beginning balance does not match, you will see a notification similar to the one below. Click the “We can help you fix it.” link and follow the steps to resolve the difference before you proceed with the current reconciliation:
   
3. Ending balance: In this field, you enter the ending balance that appears on your bank statement.
4. Ending date: Enter the ending date of your bank statement in this field.
5. Start reconciling: Click the Start reconciling button to proceed to the next step.

3. Begin Matching Transactions

In this step, you compare the transactions on your bank statement to what is in QuickBooks. Mark each transaction that appears on your bank statement in QuickBooks to “match” the two.

A snapshot of the new and improved bank reconciliation layout is below:

Begin matching bank transactions in QuickBooks Online

A brief description of the information you will find in the bank reconciliation layout is:

1. Statement ending balance: This is the amount you entered from your bank or credit card statement.
2. Beginning balance: This amount is the ending balance from last month’s statement. QuickBooks will populate this field for you.
3. Cleared balance: As you begin to reconcile each item, this amount will change depending on whether you have selected a payment or a deposit transaction.
4. Payments: This amount increases as you select payments to reconcile from the detailed transactions section below.
5. Deposits: This amount increases as you select deposits to reconcile from the detailed transactions section below.
6. Difference: This field is calculated by QuickBooks. It is the difference between your statement balance and the cleared balance. Your goal is to get to a difference of zero.
7. Transactions: In this section, you will see all of the payments and deposits that have been recorded in QuickBooks as of your statement ending date. As you can see in the screenshot above, you can filter this section to just show payments, deposits, or all by clicking on the appropriate tab.

There is no right or wrong way to reconcile. However, I suggest that you reconcile the area with the least number of transactions first. Remember that your goal is to make sure that every deposit and withdrawal listed on the bank statement is marked as “cleared” in this reconciliation window.

To mark an item as cleared, you simply click the radio button to the right of deposit column as indicated in the screenshot below:

Mark bank transactions cleared in QuickBooks Online

Let’s say that you decide to start with deposits. Once you have marked all of the deposits that appear on your bank statement in this window, verify that the total deposits cleared match the total deposit amount on your bank statement.

In the example below, the total deposits on our bank statement ($5,017.17) match the total deposits we have cleared in QuickBooks ($5,017.17), so we can move onto payments. However, if your deposits are not in balance, head over to the next section for tips on how to fix this issue.

Sample Bank Statement to Review Deposits & Credits

Deposits Cleared in QuickBooks

Repeat the same process of marking items that appear on your bank statement for withdrawals (payments) as cleared. Make sure that the total payments cleared in QuickBooks match your bank statement.

In the example below, total withdrawals (payments) on our bank statement ($2,496.53) match the total withdrawals we have cleared in QuickBooks ($2,496.53). If it does, you can move onto the next step; however, if your withdrawals (payments) are not in balance, head over to our troubleshooting tips section.

Sample Bank Statement to Review Withdrawals & Debits

Withdrawals & Debits Cleared in QuickBooks

4. Confirm the Bank Reconciliation in QuickBooks Has a Difference of Zero

This is a critical step in the bank reconciliation process. Once you have matched all transactions, the difference should be zero. If it’s not, do not click the Finish now button. Instead, try some of the troubleshooting tips below to locate the issue.

Once all deposits, withdrawals, and payments match the bank statement, you should have a difference of $0.00 as indicated in the screenshot below:

Click the Finish now button to generate the bank reconciliation reports. Behind the scenes, QuickBooks marks all of the deposits and credits that have been reconciled as cleared.

5. Review & Save QuickBooks Bank Reconciliation Reports

This is a snapshot of the detailed bank reconciliation report QuickBooks generates:

Review and save QuickBooks bank reconciliation reports

Below are a couple of tips you should keep in mind as you reconcile your bank accounts:

Tip 1: It’s important to save all bank reconciliation reports for every bank account. I recommend you create a folder for each bank account to keep these reports. To learn more about organizing key reports and documents such as this, check out our Small Business Bookkeeping Guide.

Tip 2: Bank reconciliation reports are one of the top five reports that auditors request. In my experience as an auditor, if you are not able to produce these reports, I can promise you that the audit will not go well for you.

How Bank Reconciliation in QuickBooks Affects the Financial Statements

Reconciling your bank accounts does not change your financial statements. However, the items that have been reconciled are flagged in the QuickBooks check register as reconciled. This means that the transaction has come through and cleared your bank account.

In the check register, checks and deposits that have been reconciled will have the letter “R” next to them, as indicated below:

Reconciled checks and deposits in QuickBooks Online

TIP: Typically, once a bank transaction is reconciled, you don’t want to make any changes to it. This is because you have balanced it with your bank statement. You can edit the account if you need to (e.g., you’ve categorized something as meals and entertainment that should have been office supplies), but you do not want to make any changes to the date or the amount. If you do, you will no longer be in balance with your bank.

8 Troubleshooting Tips for Bank Reconciliation in QuickBooks Online

Whether you have done a number of bank reconciliations or if it’s your first time, you will at some point encounter an issue. We have compiled eight troubleshooting tips to help you resolve bank reconciliation discrepancies.

Below are eight troubleshooting tips to help you resolve bank reconciliation discrepancies:

1. Narrow your search to transaction type: Determine if you are out of balance with the withdrawals and payments or deposits and credits. This will make it easier to find the difference. However, there may be times when you will be out of balance by multiple transaction types.
2. Balance one transaction type at a time: If you are out of balance for deposits and withdrawals, then tackle them separately. In other words, balance withdrawals first and then move onto deposits and credits or vice versa.
3. Look for the exact dollar amount of your difference: For example, if your difference is $21.50, look for a transaction for this amount on your bank statement and then on both the withdrawals and payments section and the deposits and credits section of the reconcile window.
4. Review the bank statement information: Triple-check the information that you entered from the bank statement, such as ending balance and date, to make sure they are correct.
5. Unmarked transactions in QuickBooks: Check to see if there are any transactions in the reconcile window that you did not select. If the transaction is on your bank statement, then the radio button should be marked in the reconcile window.
6. Add missing transactions to QuickBooks: If you do have a transaction on the bank statement that is not in QuickBooks, then you need to add it to QuickBooks. To do so, just click the Finish later button to save your work.
7. If the missing transaction is a withdrawal or payment, enter it as you normally would. We walk you through the steps of writing and printing checks in our how to create a check in QuickBooks tutorial.
8. If the missing transaction is a deposit or credit, enter it as you normally would. We show you the steps for making deposits in our tutorial on how to record deposits in QuickBooks.
9. Take a break: If you have been at it for a while and you need a break, QuickBooks allows you to pick up where you left off. Select the Finish later option to save the work you have done so far. Sometimes, taking a breather and coming back can help you spot what’s causing the difference.
10. Do not finalize reconciliation if you have a difference: While it might be tempting, I recommend that you don’t click that reconcile button until you have a difference of $0.00. The problem will not go away. The difference just carries over to the next month until you figure it out.

If you do hit the reconcile button and you have not figured out the difference, QuickBooks records the out of balance in a miscellaneous expense account called unreconciled discrepancies. Of course, if we are talking about a small amount (i.e., $5.00 or less), then it might be worth your while to move on. At the end of the day, you get to determine what amount you are comfortable with.

Bottom Line

That wraps up the section on How to Reconcile Bank and Credit Card Accounts in QuickBooks Online. The next lesson in our QuickBooks Online Training Course is how to manually enter business credit card transactions. In this lesson, we walk you through what to do after you have imported your credit card transactions into QuickBooks.

To access this lesson or any of the others in the series, click the links below. You can also take QuickBooks for a test drive by signing up for a free 30-day trial.

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