The “Dreaded” Bank Reconciliation
The “Dreaded” Bank Reconciliation
The Dreaded Bank Reconciliation - To learn more about this author, visit Jacquie M. Adkins's Website.
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In our experience with many small business owners, one of the most important accounting functions that needs to be done is avoided and usually not done at all, which is doing your bank reconciliations monthly. This month we are going to address how to do your bank reconciliation, and hopefully take the fear and frustration out of this process, so that you feel at ease and comfortable doing it. Doing your bank reconciliation is one of the most important accounting/bookkeeping functions you can do. Not only will you be assured of what your bank account balance is, but you can be assured that all of your income and expenses have been entered and that your books are most likely complete. The only thing the bank rec will not do is assure that the entries have been made to the proper GL accounts. Another key bit of info to remember is that when you do a bank rec, this gives the balance for that certain date, not your current balance. In order to find your current balance, you would go online, get the balance and subtract any checks that are not showing in the online banking system, and add any deposits that are not showing as well. If you have entered every transaction into QB’s daily or weekly, then once all transactions are entered (including debit card transactions), then the balance in QB’s would be your current balance. Either way, whether you go thru your online banking or use your QB’s balance, you will need to be sure all transactions are accounted for in order to get your real time current bank account balance. Understanding how to get your current bank account balance does not replace doing a bank reconciliation. The bank rec is a way to review your books somewhat, to be sure that all transactions are entered and your books are complete. Then when you know this, you can be more assured that your Profit & Loss will be correct and you can know what kind of a profit or loss you made for that month. There are a couple of things we need to remember when making entries in our books in regards to any cash, check or credit card transactions. 1. Always be sure that you enter the transaction in the correct bank or credit card account. 2. Always be sure you have entered the correct check number, if entering a check. 3. When posting a deposit into QuickBooks, you will want to have the deposit be posted as a total in your bank account, not as several separate listings. So for example, if you made a deposit totaling $3000, and it was made up of 3 checks for $1000 each, the total of $3000 should show up in your bank rec screen, not (3) $1000 entries. (How to do this to be addressed in a later newsletter.) 4. Key to remember is that what you want to show in your account in QuickBooks is exactly what the bank will show on the statement. So the bank sees a total for a deposit, or a check number for a check, and that is why these bits of information are critical to be entered correctly into QuickBooks, so that your bank rec can go smoothly. 5. You will want to be sure all your entries are made, including your debit card transactions. 6. Please keep in mind that there should not be any cash withdrawals just for spending money from your business bank account. This is what a petty cash fund would be for. So if cash is withdrawn from your account, be sure that it is for an exact amount for an exact reason, so that it can be properly entered into the GL account in QB’s. In order to do a bank rec in QuickBooks, these are the simple steps. 1. Click on Banking at the top of your screen in the top row of drop down menus. 2. Click on Reconcile 3. You will need to determine if you are reconciling a bank account or a credit card account. In this article, we are only going to be addressing the bank account. 4. Click on bank account. 5. At the next screen, you will have a choice of accounts, choose the account you wish to work on, if you have more than one checking or savings account. 6. At this pop up screen, once you have chosen the account, it will show you what the beginning balance is (If this balance is not the same as what is listed on your statement, you will need to find out why, to be addressed in a future newsletter) and have an open field to enter the ending balance for that period. Find the ending balance on your statement and enter the number in this field. 7. Also there will be a field for statement ending date, enter the statement date here. 8. You also have at this window, options to enter the service charges on this account and any interest that you may have earned on this account, which you would enter from the statement. 9. Click Continue 10. The next screen that pops up is all your checks and debit card transactions on the left hand side of the screen and all of your deposit and credits on the right hand side. 11. All you are going to do is check off by clicking next to the item all the items that are listed on your bank statement for both the minus numbers and the plus numbers. As you are entering the check marks next to the items on the screen in QB’s, you will need to write a check mark by the item on the statement. If you do not find the item in QB’s that is on the statement, then circle that item on the statement. 12. Once you have gone thru all the items on the statement, then review to see if anything that was listed on the bank statement was not checked off. You should have circled them. Now you will need to see if those entries are in QB’s, but maybe they are in a different bank account, have a wrong date on them or something like that. 13. Go to the icon for Writing Checks. At the top of that screen is a “Find” tab. Click on the Find tab. 14. Now enter the amount of the transaction in the amount field on the search window that has just popped up. Click Find. This will search in the checking account that you are in at the time you clicked on the Find tab. 15. There will either be a window that pops up saying there is no transaction for that amount, or it will pop up with a list of transactions for that amount or the individual transaction itself. 16. If there is no transaction in this account, then click cancel and then go back to write checks, click on a different bank account and then click find, enter amount and search. Do this with all bank accounts if you have more than one. 17. If the transaction amount does not come up in any bank account, you will need to enter this transaction. Be sure to enter it into the proper bank account. 18. If the individual transaction pops up, then make sure it has a correct date, check number, if applicable. Make sure that if this transaction pops up in a different bank account than you are reconciling, then simply at the transaction window, just change the bank account (field is in upper left part of window). 19. If a list of transactions pop up, look for your transaction, check the date and the bank account, to be sure it is correct. 20. To get back to your reconciliation window, just click Banking at the top drop down menus, reconcile, pick bank accounts, click on the bank account you are working on, click continue and you will get back to the reconciling screen. 21. Once everything is listed in the account you are reconciling and you have checked all of them off that are listed on the bank statement, including any new ones you just entered and checked off on both the statement and in QB’s, down in the bottom right hand corner it will show if there is a zero balance, and this means your account is reconciled. If the balance says a few cents, under a dollar, then just reconcile anyway and the software will force reconcile. CAUTION: If it is off by more than a dollar, then it is good to check all the entries to verify what entry was either entered wrong on the bank statement or in QB’s. Always look for the reason that it does not come to zero or a few cents. 22. You simply click reconcile, and a window will pop up, giving you a choice if you would like some reports and then you can choose your preference. So even tho, I have written a lot of verbiage on this subject, it is really quite simple if you keep up on this monthly and make sure you enter all your transactions. Once you get in the routine of doing this monthly, a bank rec can take just a few minutes. So simply put, enter all your transactions daily, then check off your transactions in both QB’s and the bank statement and you should come to zero at the bottom right corner of your screen and you are complete. I hope these step by step instructions help you. If you have never done any reconciliations or your books are in disarray, it might be that you would need to hire a professional to get everything in order and once that is complete, you can do the bank recs yourself. During this kind of an economy, it is essential to know where your bank accounts are at and also to be sure your Profit & Loss statements are complete. The best way to do this is by entering all your transactions daily and doing a bank reconciliation monthly. Doing your bank recs are well worth the time it takes, and if you are too busy to do it yourself, then again hire an outsourced professional and be sure to have it done monthly.
The Dreaded Bank Reconciliation - To learn more about this author, visit Jacquie M. Adkins's Website.
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