How to Process Bank Reconciliations in QuickBooks

In this tutorial, you’ll learn how to do a bank reconciliation in QuickBooks Online. You should understand how to reconcile in QuickBooks to verify that all the activity in your bank account is recorded in QuickBooks Online accurately.

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This tutorial is one in our series of Free QuickBooks Tutorials. The video below and the step-by-step illustrated instructions that follow present the same information.

Why Bank Reconciliation in QuickBooks Is Important

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 in QuickBooks accomplishes three main goals:

• All bank transactions are recorded: Reconciling your bank account to QuickBooks ensures that all transactions listed in your bank account are recorded in QuickBooks.
• All QuickBooks transactions occurred: Sometimes, a transaction in QuickBooks can be created inadvertently. If this transaction involves a bank account, a bank reconciliation will identify the bogus transaction.
• Transaction amounts are correct: Not only does a bank reconciliation ensure transactions exist on both the bank statement and within QuickBooks, it requires the amounts to be the same.

Benefits of Preparing Bank Reconciliations in QuickBooks Online

Bank reconciliations in QuickBooks Online will help ensure the number and amount of your transactions are correct. You’ll find that most discrepancies between the bank and your QuickBooks records are bookkeeping errors or omissions. For instance, forgetting to record automatic withdrawals in QuickBooks is a common mistake. However, banks do occasionally make mistakes, and it is imperative to stay vigilant with your reconciliations. A bank reconciliation will also catch any fraudulent transactions in your bank account since they won’t be recorded in your QuickBooks.

How to Reconcile in QuickBooks Online in 5 Steps

1. Navigate to Bank Reconciliation in QuickBooks Online

In the left menu bar, hover over Accounting and click on Reconcile:

2. Select the Bank Account to Reconcile

Choose the bank account that you want to reconcile and enter the ending account balance and date from your bank statement. You can also enter service charges and interest earned, but only if these amounts aren’t already entered in QuickBooks:

1. Account: Select the bank account you wish to reconcile from the drop-down menu.
2. Beginning balance: This is the beginning balance of your bank account and must agree to your bank statement. This example is a newly opened account, so the beginning balance is zero. In subsequent months, the beginning balance will roll over automatically from the prior month’s ending balance.

3. Ending balance: Enter the ending balance from your bank statement.
4. Ending date: Select the ending date of your statement period.
5. Service charge: Enter the date, amount, and expense account to charge for any service charge shown on the statement that has not already been entered into QuickBooks.
6. Interest earned: Interest earned on your bank balance that hasn’t already been entered in QuickBooks can be entered here.

When you’ve entered all the information from your bank statement, click the green Start reconciling button to continue.

3. Begin Matching Transactions

The QuickBooks reconciliation screen contains a summary of cleared activity at the top and a detailed list of transactions at the bottom:

A. Cleared transactions summary: The beginning balance and statement ending balance is from the prior screen. The cleared balance is calculated as the beginning balance minus payments cleared plus deposits cleared. Payments and deposits are the sum of transactions below that have the radial button clicked. To the right of the summary is the difference between the statement ending balance and the cleared balance. This difference must be zero for your reconciliation to be finished.

B. List of transactions: The list of transactions includes all QuickBooks transactions in this account that have not cleared the bank prior to this statement period. Any transactions not cleared this month will appear again next month.

C. Radial buttons: Click the radial button on the right side of a transaction if that transaction cleared the bank on this period’s statement.

Trace the transactions from the detailed list on this screen to your bank statement. When you have a match, click the radial button next to the transaction on this screen and place a checkmark next to the transaction on your bank statement. When you click a radial button, the transaction will be reflected in the summary of cleared activity at the top of the screen.

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

Once you have matched all transactions from QuickBooks and your bank statement, the difference shown at the top of the screen should be zero. Here is an example of the completed reconciliation for Paul’s Plumbing Chase checking account:

Checks #1002 and #1003 have not cleared the bank. This isn’t surprising since they were issued toward the end of the month. These transactions will roll over automatically to next month’s reconciliation when they will likely clear the bank.

Resist the temptation to finish without the difference being zero. The error will likely affect next month’s reconciliation and will keep accumulating, making future reconciliations harder and harder. Instead, skip to our section below for some tips for finding the difference.

Once the difference has been reduced to zero, the green button in the upper right-hand corner will become Finish now. Click this to finalize your reconciliation.

5. Review & Save QuickBooks Bank Reconciliation Reports

After clicking Finish now, QuickBooks will display a confirmation along with a link to view the reconciliation report:

Click View reconciliation report to view the report. The top of the report will display summary information similar to the top of the reconciliation screen. Perhaps the most useful information on the report is the list of uncleared, or outstanding, checks and deposits which is listed at the bottom of the report under Additional Information:

You should review this section every month to make sure these uncleared transactions make sense. Pay close attention to any checks that are getting very old, perhaps three months or more. Contact the employee or vendor and verify they received the check and determine if they need it reissued. I suggest stopping payment on the old check before reissuing a new one.

Once you are comfortable, the uncleared transactions make sense, and you are done with your reconciliation.

8 Troubleshooting Tips for Bank Reconciliation in QuickBooks Online

Bank reconciliations can be frustrating, but they are a crucial part of bookkeeping. Here are some troubleshooting tips to help you reduce your reconciliation difference to zero.

1. Verify Beginning Balances Equal

The beginning balance in the summary at the top of the QuickBooks reconciliation screen must equal the beginning balance on your bank statement. If you reconciled the account successfully in the prior month, yet your beginning balance doesn’t match your bank statement, then a previously cleared transaction has changed. QuickBooks will provide a link on the screen where you input the statement summary to help you find the changed transaction.

2. Always Start From the Beginning

If this is the first time you are reconciling this account, the beginning balance in QuickBooks will be zero. Make sure you are using the very first bank statement for that account. You may have to go back many months and then move forward, reconciling one month at a time. If it’s impossible to start your reconciliation in the first month of the bank account, you might need an experienced bookkeeper to help with your first reconciliation to get you on track.

3. Review the Bank Statement Information in QuickBooks

Triple-check the statement balance, service charge, and interest income you entered from the bank statement. Make sure the service charge and interest income are only entered during the reconciliation if they aren’t already in QuickBooks.

4. Look for Your Exact Difference

For example, if your difference is $21.50, look for a transaction for this amount on either your bank statement or the QuickBooks list of transactions. You can click on the amount column in the QuickBooks reconciliation screen to sort the transaction by amount.

5. Balance One Transaction Type at a Time

Many bank statements will separately summarize deposits and withdrawals as does the summary at the top of the QuickBooks reconciliation screen. First, try to match total bank deposits to total QuickBooks deposits by reviewing only deposit transactions. Then, match total withdrawals from QuickBooks and the bank statement.

6. Investigate Unmarked Transactions in QuickBooks

Double-check that all the unmarked transactions in the reconciliation window do not appear on the bank statement. If the transaction is on your bank statement, then the radio button should be marked in the reconcile window.

7. Investigate Unmarked Transactions on Your Bank Statement

Verify that all transactions on your statement have been matched to QuickBooks. Add any transactions that are missing from QuickBooks by clicking the green Finish later button and entering the transactions as normal.

8. 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. Click the Finish later button 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.

The most important thing you can do to keep your reconciliations simple is to do them monthly shortly after receiving your bank statements. The longer you wait to reconcile your accounts, the more difficult it will be.

Wrap Up

You’ve finished another tutorial in our QuickBooks Online Training Course. You now know the importance of bank reconciliations and how to complete them in QuickBooks Online. The next tutorial in our QuickBooks Online Training Course is How to Manage Downloaded Credit Card Transactions. That tutorial will teach you to review, classify, and accept or exclude credit card transactions that are imported automatically from your connected credit card accounts.