How to Process Bank Reconciliation in QuickBooks

Welcome to the Fit Small Business QuickBooks Online training course! In this lesson, we’re going to cover how to reconcile bank and credit card accounts in QuickBooks Online.

You can follow along on your own QuickBooks Online account. If you don’t have one already, click here to sign up for a free 30-day trial and follow along below.

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 is it Important to Reconcile your Bank Accounts?

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 QuickBooks.

Reconciling your bank accounts regularly will help to ensure the following:

• 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 amount by the bank).
• Timely notification of any fraudulent transactions. 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 that they can investigate.

What are the Benefits of Reconciling your Bank/Credit Card Accounts in QuickBooks Online?

Some of the benefits of reconciling your bank account in QuickBooks are:

• All transactions on the bank statement get recorded in QuickBooks.
• Your financial statements such as the Profit & Loss statement and Balance Sheet are up-to-date.
• All of the reconciled transactions are marked in QuickBooks as cleared.
• You are able to run bank reconciliation reports that will provide the details of the items that have cleared the bank and those that remain outstanding (uncleared).

How Do I Reconcile my Bank/Credit Card Account in QuickBooks?

Before you follow the steps to reconcile, be sure that you have your bank/credit card statement handy for the account that you want to reconcile. We will refer to the bank statement often during this process.

Here are the 5 steps to bank reconciliation in Quickbooks Online:

Step 1 – Navigate to the Reconciliation Tool

From the Home page, click on the Gear icon to the left of your company name. Below the Tools column, select Reconcile as indicated below.

Step 2 – Select the Bank/Credit Card account you would like to reconcile.

Complete the fields as indicated below.

1. Account – From the drop-down, select the bank/credit card account you would like to reconcile.
2. Beginning balance – This field will be 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 on 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 will 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.

Step 3 – Begin Matching Transactions

In the next screen, you will see the new & improved reconciliation layout! Below is a screenshot and a brief overview.

1. Statement Ending Balance – This is the amount you entered from your bank/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 will increase as you select payments to reconcile from the detailed transactions section below.
5. Deposits – This amount will increase 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 each of the tabs.

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 our 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 as indicated in the screenshot below.

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

In the example below, total deposits on our bank statement ($5017.17) match the total deposits we have “cleared” in QuickBooks ($5017.17). If it does, you can move onto payments. However, if your deposits are not in balance, head over to the next section for tips on how to troubleshoot this out of balance.

Sample Bank Statement

Deposits Cleared in QuickBooks

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

In the example below, total withdrawals/payments on our bank statement ($2496.53) match the total withdrawals we have “cleared” in QuickBooks ($2496.53). 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

Withdrawals/Payments Cleared in QuickBooks

Step 4 – Confirm $0.00 Difference

Once all deposits and withdrawals/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 will mark all of the deposits and credits that have been reconciled as “cleared”.

Step 5 – Review & Save Reconciliation Reports

Below is a snapshot of the detailed bank reconciliation report that QuickBooks will generate.

Tip #1: It is important that you save all bank reconciliation reports for every bank/credit card account. Create a folder for each bank/credit card account to keep these reports in. To learn more about organizing key reports/documents such as this, check out our Small Business Bookkeeping Guide.

Tip #2: Bank reconciliation reports are one of the Top 5 reports that auditors will 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.

8 Troubleshooting Tips for Reconciling Bank/Credit Card Accounts In QuickBooks Online

Try some of these tips if you’re having trouble getting a $0.00 difference between what’s in QuickBooks and what’s on your bank statements:

1. If possible, narrow the search down to the transaction type. Figure out if you are out of balance with the withdrawals and payments or deposits and credits.
2. 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 that you are off. For example, if your difference is $21.50 then 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. Triple check the information that you entered from the bank statement (ending balance, statement ending date etc;)
5. 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. If you do have a transaction on the bank statement that is not in QuickBooks then you will need to add it to QuickBooks. To do so, just select Finish Later from the drop-down to save your work.
   1. If the missing transaction is a withdrawal/payment, enter it as you normally would. In our how to write and print checks lesson, we walk you through step by step on how to create a check in QuickBooks.
   2. If the missing transaction is a deposit/credit, then enter it as you normally would. In our how to make deposits lesson, we walk you through step by step on how to record deposits in QuickBooks.
7. Take a break. If you have been at it for a while and you need a break, select the Finish Later option to save the work you have done so that you can easily pick up where you left off. Sometimes, taking a breather and coming back can help you spot what’s causing the difference.
8. 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 will just carry 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 will record the out of balance in a miscellaneous expense account called unreconciled discrepancies. Of course, if we are talking 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.

What Impact does Reconciling Bank Accounts Have on my Financial Statements?

Reconciling your bank/credit card accounts does not change your financial statements. However, behind the scenes in QuickBooks, the items that have been reconciled are flagged as follows:

In the check register, reconciled checks and deposits will be indicated with the letter “R” as indicated below.

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

Wrap Up

That wraps up the section on How to Reconcile Bank/Credit Card Accounts in QuickBooks Online. The next lesson in our QuickBooks Online Training Course will be How to Manually Enter Business Credit Card Transactions. In this lesson, we will 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 here. Or, click here for a free 30-day trial of QuickBooks Online.

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