How To Classify Transactions and Reconcile Bank Accounts in FreshBooks

We’re pleased to present this tutorial for FreshBooks, our pick for one of the best accounting software programs for freelancers. In this fourth tutorial, we’re going to cover how to classify imported transactions, reconcile bank accounts, and print a reconciliation report in FreshBooks.

You’ll receive the most benefit from this tutorial by following along in your own FreshBooks account. You can try FreshBooks for free or receive 60% for six months.

Classifying Imported Bank Transactions in FreshBooks

You can view and classify bank transactions, such as expenses, by navigating to the appropriate page. To review a list of your expenses and associated categories, click on Expenses on the left menu bar. Under All Expenses, you can select any transaction to view more details and change the category if desired.

If you need to change the category of a transaction, click on the category field. This will show a drop-down menu, and you can reclassify the transaction if necessary. You can also change the merchant name, date, or amount; add a description if needed; or assign the expense to a client or project. When finished, click on the green arrow to save the transaction.

Matching Imported Transactions With Existing FreshBooks Transactions

FreshBooks allows you to review, then match or mark any bank transactions imported into your account, so that your bank account balance matches your FreshBooks balance.

Once you have accessed the Accounting screen, you will see a list of transactions in two columns. The column on the left shows your bank transactions, and the column on your right displays suggested FreshBooks matches.

There are many types of entries that you can match or mark to aid in FreshBooks bank reconciliation. You can match expenses, invoice payments, bill payments, other income, and credit. You can also mark a transaction as a transfer, owner’s equity, or an expense refund.

Match Transactions

If you have an unreconciled bank transaction and see the corresponding entry or multiple entries in the FreshBooks entries section, follow these steps to match them:

1. In the Bank Account Transactions section on the left, check a transaction.
2. In the FreshBooks Entries section on the right, check one or several entries that match. Use the search bar if you need help finding your entries. The amount selected from bank transactions must match the amount selected in FreshBooks matches.
3. Click on the Match button.

Mark Transactions

If your unreconciled bank transaction doesn’t require an accompanying FreshBooks entry to match it because it’s a transfer, owner’s equity, or expense refund, follow the steps below:

1. Check the box next to the bank account transaction.
2. Click on the Mark As button at the top.
3. Choose from the appropriate category—Transfer, Owner’s Equity, or Expense Refund.

Create a New Entry

If a FreshBooks entry doesn’t yet exist, you can create it with the following steps:

1. Under FreshBooks Entries, click on the Create a New Entry button.

Depending on the kind of matching entry you need to create, choose from Expense, Other Income, Invoice Payment, and Bill Payment. Once saved, this entry will appear in the list of FreshBooks entries.

2. Check off the entry or entries that you have created.

3. Click on the Match button.

Reconciling Bank Accounts in FreshBooks

The process of reconciling bank accounts in FreshBooks is quite simple, but there’s currently no month-end closing process in the workflow. Like other accounting software, it’s handled as transactions are downloaded in the bank feed, which allows you to reconcile on a daily or weekly basis. But there isn’t a formal reconciliation process, which may be an adjustment if you’re accustomed to standard month-end closing procedures.

Bank reconciliation requires a bank connection so that you can match transactions from your bank statement to your activity inside FreshBooks. Once your bank account is connected, you’ll need to set an opening balance before you can start reconciling transactions.

Bank reconciliation allows you to match any bank transactions to any FreshBooks entries in your account so that your book balance matches your account balances. It also allows you to classify transfers, owner’s equity, and expense refund transactions.

To access the Bank Reconciliation, click on Accounting on the left menu and then select Set your opening balance, as indicated below.

In the field provided, enter a date to start reconciling from. This could be the first date from your recent bank statement or the start of a period on your credit card statement. Note that you can’t select a reconciliation start date prior to the date of your first imported bank transaction. Once you have entered this date, click Continue.

In the next field, enter the opening balance from the date you chose to start reconciling. Then click Continue again. You’re now ready to start reconciling this account. You’ll only need to set the opening balance the first time you reconcile an account. Click Get Started to begin the reconciliation.

At the top right of the Bank Reconciliation screen, you’ll see two balances:

• Bank Account Balance: This includes the opening balance entered for this account and all imported transactions in real-time (as of the most recent sync).
• FreshBooks Balance: This is your opening balance entered for this account, the transactions you have matched in Bank Reconciliation, and any journal entries that have been posted to this account.

Match All Unreconciled Bank Transactions to FreshBooks Entries

The left half of the bank reconciliation screen lists all of your imported bank transactions that haven’t been matched to FreshBooks entries. For a reconciliation to be complete, you must assign each bank transaction to a FreshBooks entry.

To do so, click on an unreconciled bank transaction on the left side and then one or more FreshBooks entries that comprise that bank transaction on the right side. In the box above the list of entries, the amount “Selected in Your Bank” should equal “Selected in FreshBooks.” If they’re equal, click the green Match button to reconcile the entries.

The process of reconciling bank transactions to FreshBooks entries is essentially the same as matching incoming bank transactions discussed in the prior sections. If you’ve already matched all bank transactions to FreshBooks activity, then the reconciliation screen shouldn’t show any unreconciled bank transactions.

If the bank transaction hasn’t been recorded in FreshBooks yet, you can click on Create a New Entry at the top of the FreshBooks entries column to create and assign a new transaction. Once all of your unreconciled bank transactions have been assigned, the bank account balance and FreshBooks balance at the top of the reconciliation screen should be equal.

Review Unmatched FreshBooks Transactions

After all of your bank transactions have been matched to FreshBooks entries and your left column is blank, you must review the FreshBooks entries in the right column which haven’t been assigned to bank transactions. Each FreshBooks entry should fall into one of the following categories:

• Transactions from different bank accounts: These will be matched to bank transactions when the other bank account is reconciled.
• Outstanding transactions from this account: Transactions such as checks written from this bank account that haven’t yet cleared the bank are called outstanding transactions and it’s proper for them to remain in the Unmatched FreshBooks Transaction column until the next period when they clear the bank.
• Petty cash transactions: If you keep cash on hand, any cash transactions will remain unmatched forever.
• Incorrect transactions: If an Unmatched FreshBooks Transaction doesn’t fall into any of the three categories above, then it’s likely a bookkeeping mistake. It’s important you investigate these mistakes and correct them.

Print Bank Reconciliation Summary Report

The Bank Reconciliation Summary is a report that allows you to see if there are any remaining transactions to be matched in your bank reconciliation. It also shows a summary of all unmatched transactions across all bank accounts, as well as any payments and expenses logged in your FreshBooks that have yet to be matched.

You can generate a Bank Reconciliation Summary by following these steps:

1. Go to the Reports section
2. Select Bank Reconciliation Summary under Accounting Reports

The report (sample seen below) displays the following transactions:

• Unmatched FreshBooks Entries: These transactions are displayed first and show all of your payments and other income that haven’t been matched to transactions in your bank account. These are the transactions we reviewed in the prior section.
• Unmatched Bank Transactions: These are transactions from your connected bank account that have yet to be matched to entries from FreshBooks. Notice the reconciliation report includes all transactions across all connected bank accounts, not only the bank account you just reconciled.

To adjust your view of the Bank Reconciliation Summary, click on Filters under Settings. From there, you can change:

• Reset All: Click on this link to restore the filters back to the default settings.
• Date Range: Select from Today, End of Last Month, or Custom to enter a specific date range.
• Bank Account: You can filter this report by which bank account you want to view transactions from.

Bottom Line

You have now learned how to manage and reconcile bank accounts in FreshBooks. The next and final tutorial in our FreshBooks course is “How to Print Reports.” That tutorial will also cover how to navigate to reports, what reports are available, and how to set basic options.