Do you know what is really in your bank account? Do you know within days if a customer’s check bounced? Do you confirm that the teller is depositing your money into the correct business bank account? My theory is to trust, but verify with the process of reconciliation.
Reconciling is a way to compare bank records to your records. This process should be done at least monthly and may be done on a weekly or daily basis if needed.
To reconcile your bank account in QuickBooks, from the task bar click on banking, reconcile, and choose the bank account, statement date, and ending balance. Look at each transaction. If the transaction matches both the QuickBooks file and bank statement, click the item in QuickBooks and use a highlighter to mark the item on the bank statement. Do this process for each deposit and each check/withdrawal. After marking off each item, the difference between the cleared balance and ending balance should be zero. The difference is shown in the bottom righthand corner of the reconcile screen in QuickBooks.
If there is a discrepancy, first look at the total deposits and total checks to see if the totals match the totals on the bank statement. This will help you narrow your search instead of looking back through each item again. Then, find which item(s) needs to be adjusted and why. This could be due to a number of reasons such as a typo, bank error, duplicate entry, or even fraud. After determining the reason for the discrepancy, you can edit the item or enter a journal entry to make the difference between your ending balance and cleared balance zero.
Reconciling the bank account is important for producing accurate and up-to-date financial statements, sales tax returns, quarterly payroll reports, and annual tax returns. It is normal to see minor differences due to the timing of outstanding checks and deposits, but you should be able to explain each outstanding item easily. This same process should also be applied to your credit card statements.
Adding bank reconciliations to your accounting routine will not only improve the accuracy of your financial statements but better assist in evaluating the cash flow of your business. Call the KTLLP QuickBooks ProAdvisor Team with any questions.