New business owners who will be migrating their bookkeeping and accounting tasks from traditional pen-and-paper ledgers to QuickBooks need to understand how reconciliation works on the digital platform. In this article, we’ll provide a general guide to the reconcile feature in QuickBooks Online – how it works and why it’s key to overseeing a business’ correct cash position.
What does reconciliation mean in QuickBooks?
Reconcile is a feature in QuickBooks that lets business owners match their company’s transactions to the ones the bank has. This means that accountants can see if the amount shown in the company’s online ledgers matches the actual amount in its bank account. The balance in the company’s bank account is the accurate representation of the cash available to the company based on records, assuming that all transactions have already been settled.
All financial transactions should be compared with the monthly statements from credit cards, bank accounts, and other external financial sources to ensure that there are no miscalculations, fraudulent activities, or any forms of discrepancies that would invalidate the accuracy of the records.
When using QuickBooks Online, the ending balance of the previous month should be the same as the beginning balance of the following month. The final balance at the end of the last month should also match the bank statement.
Why learn how to reconcile in QuickBooks?
Companies are using QuickBooks Online for a reason: they want to streamline their accounting methods to deliver quality financial reports anytime, anywhere, and for any purpose in the most transparent way possible. They want to have the freedom to track sales, monitor expenses from any device, and stay on top of their overall financial health before making transformative decisions.
Leaders in the organization need to leverage robust accounting solutions that investors and government institutions can trust. That said, utilizing the tools is just one part of the whole spectrum. Accountants also need to understand how to reconcile in QuickBooks Online to accurately compare transactions and balances and save a lot of money from paying overdraft fees.
How can the business prevent overdraft fees using QuickBooks?
Banks offer overdraft protection as an add-on service to their checking accounts, preventing account holders from embarrassing consequences of writing a bounced check when they spend more than what’s in their account. To cover this, banks charge the holder with $35 for every transaction.
When preventing overdraft payments, all accounts need to be reconciled in QuickBooks to ensure that the business has more than enough money to cover expenditures, outstanding checks, or automatic cash transfers.
How to reconcile in QuickBooks
Reconciling your business’ accounts on QuickBooks Online can be a breeze when all transactions are recorded beforehand. Here’s how to reconcile bank accounts in QuickBooks Online.
1. Gather bank statements
Get all the monthly bank and credit card statements that are for reconciling in QuickBooks Online. They are either sent to the company via mail or e-mail. Business owners or accountants can also request these statements if they no longer have a copy. After that, log-in to your QuickBooks Online account or click this link.
2. Click the gear icon and select ‘Reconcile’
Click the gear icon, located in the upper right hand corner of the page, and select ‘Reconcile’ from the menu (located under the “Tools” column).
First time reconciling an account?
New users can create a new bank or credit card account in QuickBooks. Pick a day to mark the start of the transactions and enter the opening balance. The opening balance should be the bank account’s actual balance on the starting date the user indicated. Once the bank and credit card accounts are connected to QuickBooks, all historical transactions will be automatically downloaded for a certain period.
3. Select accounts for reconciling
Choose the bank or credit card account that needs to be reconciled from the drop-down menu.
4. Enter statement end date and ending balance
Review the beginning balance in QuickBooks and make sure that the amount is the same as what’s indicated in the bank statement. After that, enter the ending date and ending balance on your statement.
5. Match bank statements with the ‘Checks and Payments’ menu
When comparing transactions, start with the first transaction on the bank statement. Find the same transaction in QuickBooks. If they are the same, tick the box next to the amount in the QuickBooks’ Reconciliation window. This will mean that the transaction is reconciled.
If some transactions appear on the statement, but they are not recorded in QuickBooks, don’t tick the box. Do this until through to the last transaction on the statement.
6. Make sure the difference is $0
After cross-matching the last transaction on the bank or credit card statement with QuickBooks’ records, the amount on the ‘Difference’ portion at the end of the page should be $0.00. If it is, click ‘Finish’ to save the changes and download the reconciliation report.
What happens if the difference is not $0?
It can be very confusing when the accounts in QuickBooks don’t match the bank statement at the end of the reconciliation. If the difference between the two records does not show $0.00, then there is a need to review all transactions and balances.
Factors affecting ending balance errors
- Encoding an incorrect ending balance at the beginning of the reconciliation
- Missing transactions in QuickBooks
- Encoding transactions that haven’t been cleared off by the bank
- Duplication of transactions
Here’s how to resolve the issues:
- Double-check the opening and beginning balances and make sure they’re accurate.
- Review the ending balance and ending date and make sure they’re consistent with the bank statement.
- Should the bank record multiple transactions in one single record, do the same for QuickBooks.
- If the transactions on the bank statements still do not appear in QuickBooks, follow these additional steps:
- Go to the Sales or Expenses tab.
- Look for the transactions present in the bank statement but not in the QuickBooks Reconciliation menu. If they appear, select the transaction and open it.
- Check the ‘Deposit To’ or ‘Payment’ account and see if the transaction is the correct amount. If not, select a different account.
- If all transactions have been reviewed, accountants can begin entering new transactions that appear on the bank statement but cannot be found in QuickBooks. They will be considered as new sales receipts or expenses
5. Look for any duplication of transactions. Here’s how to do it:
- Go to the ‘Sales’ or ‘Expenses’ menu
- Sort the list by date, customer, supplier, or amount.
- Delete any obvious duplicates from the list by going to the ‘Accounting’ menu and selecting ‘Chart of Accounts.’ From there, find the account that needs to be reconciled and select ‘View.’ Look for the transaction and click it to see more details. From the options, click ‘Delete.’
How often should the business reconcile?
It is strongly recommended that businesses perform a monthly bank reconciliation to ensure the accuracy of the business’ financial records. This will help identify errors in a timely manner and detect any unusual transactions that may be fraudulent.
It will be easier for business leaders to make informed decisions if the accounting and bookkeeping records they have on-hand are accurate and credible. By simply reconciling the accounts on QuickBooks online, accountants will be able to monitor the entire financial landscape of the business and prevent any forms of fraudulent activities that would curtail the company’s steady growth.