AuthorConner Schryver is the founder and CEO of Bookkeep & Prosper 
This guide to the top 10 accounting mistakes and solutions is the launch board to getting your accounting on the right track.
Archives
August 2023
Categories |
Back to Blog
What are reconciliations? Reconciling is where you tie your accounting back to a source of truth. Most reconciliation is reconciling bank accounts. So, you are reconciling all the transactions you have made over the course of a month or whatever the accounting period is back to the actual statement from that financial institution. Now, it does not necessarily always have to be bank accounts, but that is the most common. You might also do this for your loans, make sure you have recorded the right amount of payments on your loans and the interest and that it is all done correctly. You may do this for your merchant accounts, whether you are using Shopify or Stripe, you want to reconcile that the balances at the end of the month held in Stripe or in Shopify or wherever else match what the actual statements show. So, let us dive in and take a look at how this works: Now, you will typically see it here on QuickBooks. This is going to be your typical landing page on QuickBooks online. You will be in this, Get things done tab right here.   Now, what you will want to do is navigate down to the Bookkeeping tab  and from here, select Reconcile, and this will be the opening screen, but you just go ahead and say, Get started.  And then you can say, Let’s get reconciled.  So, this should be the screen. Once you get through those opening screens for the first time you use the functions, you will land on this screen.  So, you can see here that they do provide an option for you to watch Stuart’s video on how to reconcile. I am going to walk you through that myself. So, you can go ahead and close that right there.  Now, what we should see here is that you will be in account selection here. So, in your chart of accounts, right, which is what they are showing here, these are all the different items that QuickBooks allows you to reconcile.  We should see several different bank accounts. We are going to go ahead and reconcile the checking account and that is where we are going to start.  So, typically what you will see here is that, if you have never reconciled before you will not see any reconciliations here, and now if you have, it will tell you when the last reconciliation that you performed was. So, in this case, I just went in here and added this last reconciliation as of April 30th, 2022.  And what they will show you here is your beginning balance. And now what is your new ending balance and what is the ending date? Now you will find these on the actual statement. So, let us pull up this statement for May of 2022. Typically, you will be able to see this as a PDF that you can download from your bank account, or you may have a paper statement somewhere. Now, this is not a true statement. This is just a report I made to help us facilitate this video, but you will typically see a couple of key items here. You will see the start and end dates. In this case, we can see for all of May of 2022. Now we will also see here that they are going to show a beginning balance here. And so, we can see the beginning balance there and we can check to see that it matches what we have in QuickBooks. Now we will also see here that they are going to show a beginning balance here. And so, we can see the beginning balance there and we can check to see that it matches what we have in QuickBooks. So, let us do that first. Now, back in QuickBooks, we can see that the beginning balance does match, that is $4,349.46. And that does match right here, $4,349.46.  Now there will be an ending balance too. And typically, these are shown at the top of your statement, but in this case, we just are showing them here on the balance side of things. So, we have starting balance right here, and we have ending balance right down here. So, I am going to go ahead and copy this ending balance, and I will add it to our reconciliation sheet.  Now that we are back here in the reconciliation screen, I will go ahead and add that ending balance and the ending date; I can go ahead and select May 31st.  So that is the end of the statement. Now what we can do now is just go ahead and select Start reconciling.  Now, if you would like to have a little bit more space on your screen, there are a couple of options here. One is this expansion button here or the hamburger icon.  If you select that, it is going to collapse the sidebar menu, or you can select it again to open that menu back up. Now you can also collapse this upper section here. If you want to be able to see more of the transactions and you can also expand that down with this little arrow, we will go ahead and leave it open.  As we do not need to have that much space for the purposes of this video. Now, what you will see on this screen is that we have added the statement ending date, we have the statement ending balance, and we have the cleared balance. (So cleared balances are the balance you have marked as cleared and the transactions are in and showing that).  Now on your statement, you will typically have total money out and total money in as well. And so that is an easy way to show what those two amounts are as QuickBooks is going to calculate it right here, as we select transactions. Now, I do not have that showing on our particular statement, but that is something you will typically see on your statement and so, if the balance is off, you can take a look at these numbers once you have selected all the transactions and say, “I do not have enough payments” or “I do not have enough deposits coming in or out of my account and that is where I need to look for errors.” In this case, what I will typically do is select all the transactions to see where we land.  And as we do that, or we can just go one at a time. And so, you can see here as we select these transactions, so these are transactions we have already entered into QuickBooks, so QuickBooks has these recorded, and now we are checking them against the actual statement. So, you can see here on 05/04, we had a check, and it was for fuel to Chin's Gas.  Now, if we check the statement, you can see here on 05/04, we had a check for Chin's Gas and Oil, and that was for a fuel expense.  Anyway, this is all categorized in QuickBooks, your bank not might have this much detail in here, but they should have the amount, whether it was a check, and they may have some information on who it was to. Some statements, also show check images towards the end of the statement and so, your bank may do that as well. And if you do have more questions about who the check was for, you can typically log into your bank account and look at a scanned image there as well. But we can see that this transaction is in here. It is for $62.01. And now looking back at the reconciliation screen, you can see here, the payment $62.01.  Now you can go line by line and as you select them you can see the amounts update, the deposits are updating, and the payments are updating right here. And you can see the difference that you still have between the statement ending balance and the cleared balance, which is the balance that is incorporating all of these items we have selected. Now, what I will typically do is go ahead and select all of the transactions. And there may be some already preselected in here, on your behalf by QuickBooks and that is fine. I will just make sure that the total amounts match what we show on the statement and that the difference here is zero. So, you will know the difference is zero when it says zero, and there is a little green check mark.  Now we can still see there could be a case where these deposits and payments did not match up in terms of the totals here for the month. But in this case, I know it does and so we have matched the cleared balance and I can go ahead and click select to Finish now.  You will have the option here to attach a statement, depending on which level of QuickBooks subscription you may have, but you can attach the statement right to the reconciliation, that way if your CPA or any of your financial professionals need to review that in the future, they have the statement right there and they can review it. Now let us take another look at doing another reconciliation and this time maybe one that is not quite so clean: So, we have another statement here. This one is for June of 2022, and we have a starting balance. I will go ahead and copy that starting balance. And I am just highlighting it and using command C on a Mac or control C on a PC. Now I will add that to the ending balance, and we can see that the beginning balance matches. So actually, what I needed to copy was the ending balance down here, which is $1,201. Go ahead and copy that. Now I can add that ending balance and I can add the ending date. And so, this statement is for June so I will go ahead and select June 30th, 2022, and I can Start reconciling.   So, we are on that same screen. Now we have got our statement ending balance. We have the ending date, we have the cleared balance payments in our payments out and deposits in. So let us go ahead and select all of the transactions as we normally would to make sure to see if a quick way if we are already ready to reconcile. So, in this case, we are not ready to reconcile, as you can see we have selected all the transactions, but there is actually a difference here. And so the cleared balance is not matching the ending balance.  So, what we need to do is go and investigate the statement. Now there are a couple of different ways we can do this. What I am going to do is show you there are different ways to troubleshoot this part. Now when you do have errors and you need to go and check: The first thing we will do is go back to the statement. So, in the statement here, right, we have all the transactions. So, what we would typically do is go line by line and go back through and actually check these off one at a time, as opposed to checking them off all at once. Now, I am not going to do that during this video, that would be time-consuming, and you do not need to see me checking off item by item, but there are a couple of things we can do, to check quickly. Now you remember I copied the total amount that we were off by, so if we are only off by one transaction item, one thing you can check is you can do a search of a document. So, if you are looking at a PDF document that has searchable rights, not just a picture, then we can look for that specific amount. Now on a Mac, I am going to press command F or on a PC, and we are going to do command-control F and that is going to pop up a little search window up here.  I am going to go ahead and paste the amount in there, and then I will press enter.  And that is searching the document for this amount. What we can see here is that there is a check here for Hicks Hardware on 06/08 for $228.75. Now, if we go to look for that amount in QuickBooks, that was on 06/08. So, if we scroll down to 06/08, you can see that there is a deposit of $868.15, and there is an expense of Legal & Professional Fees to Pam Seitz for $75. But there is not actually that check to Hicks Hardware. So, we can see that that transaction is missing. So, we need to add that into QuickBooks.   Now, how can we do that? There is a button up here. It says New.  If there's a plus button and it says New in this menu, that is a great way to do most of the transactions you are going to need to do on a regular basis for your accounting. Now, I will tell you this, if this menu is collapsed, a plus button will pop up right here in the middle of the screen, and you can still access this menu.  So, when you select that menu, there are going to be different options popping up here in terms of different areas to make a transaction, or to access something within QuickBooks.  Now, if you select it over here, it may present basically in the same way (the New Menu). So, this was a check, so we are going to go to the vendors, and we are going to select Check.  Now, check dates are typically before they are deposited, but in this case, we are going to go ahead and use the same date we had on the menu. Now we need to choose a payee, and this was for Hicks Hardware.  So, we can see it there. This is coming out of the Checking account.  So, you do need to select which account. So, if it was coming out of savings, you need to select Savings otherwise, it will not match up.  In this case, we can see there is actually a purchase order here that we had added to QuickBooks. And so we can add that in, but I am not going to do that. For example, I am going to go ahead and add the check number, I think it was 5, let us double-check that. I am glad I did. That was from the previous month. We can see this is check number 75. So let us go ahead and update that amount. All right.  So, the check number is 75 and the category is going to be Maintenance and Repair. And the description I will just put in here, Supplies for Repair, I will put in that amount, $228, 75.  These appear in different ways in QuickBooks and memos are great to have. I would suggest always having a memo and descriptions can make it easier, especially if you wanted to make this itemized, you can put in here, you know, paint, plaster, whatever else you needed to add. And then you could have a memo that sort of replies for all but if you want to itemize it, that is a great way, but I will typically add a description in both locations. And now if you have an image of the check or a receipt, you can also attach that here. Where you could have scanned it, or you can take a screenshot and add it right here.  And that is a great way to make your books have all their receipts matched, and then you do not need to actually save the receipt physically. You can just have it here attached in QuickBooks. So, we have made this check. It is for 06/08. The same date is for Hicks Hardware, check number 75. We will go ahead and Save and close.  And now we will see when we scroll down, that there is a new transaction here that has not been selected. Let us go ahead and select that transaction.  And now we can see that we have that transaction selected. The difference is zero, the statement ending balance, and the cleared balance match, our payments out, and our deposits in match what we have on this statement. And we are ready to be finished. Now, if you ever need to leave the screen and come back, you can select this down arrow here on the top. And you can say, Save for later.  And then you can come back to that reconciliation later and resume it. But for now, we are just going to finish. You can also Close without saving, but we do not need to do that.  We will finish now, we have reconciled this account.
And, so now we have done two months of reconciliations. you have seen what it looks like when there is a transaction missing and a little bit on how to add one. Now, if you need to know more about how to add different types of transactions in the future, different types of expenses or payments or receiving payments, we will cover those in separate videos. This is just to give you a basic overview of how to do your reconciliations, how to match up what you see on the bank statement with what is in QuickBooks, and how to adjust for any transactions that may not match, or that need to be added in QuickBooks. Thanks for watching. Let me know if you have any questions or concerns and what we can review for you in the future.
0 Comments
Back to Blog
Accounting principles are the rules and benchmarks in the accounting field that a company should follow while reporting the financial statements. In the USA the Financial Standards Accounting Board (FASB) and the Securities Exchange Commission (SEC) have endorsed the U.S. Generally Accepted Accounting Principles (GAAP). Compliance with the Generally Accepted Accounting Principles requires that accountants and bookkeepers follow the Basic Principles of Accounting. It may feel as if your accounting procedures are functioning for you. However, when the moment arrives where you need accurate reporting, not standardizing your financial statements will cost you time and money. So, why are the Basic Principles of Accounting important? Following these principles standardizes accounting procedures and ensures that a company’s financial statements are complete, consistent, and comparable. This impacts business owners the most when applying for business loans, selling their company, or buying another business. Most financial institutions require GAAP compliant financial statements as part of their debt covenants and investors are wary of investing in non-GAAP compliant companies as revenue numbers can be misleading. It may feel as if your accounting procedures are functioning for you. However, when the moment arrives where you need accurate reporting, not standardizing your financial statements will cost you time and money. Basic Accounting Principles (Rulebook governed by Financial Accounting Standards Board and controlled by the Generally Accepted Accounting Principles)1. Economic Entity AssumptionThe Economic Entity Assumption outlines the requirement that all business and personal transactions must be separated. This may be confusing if you are a sole proprietor and you are thinking about filing your business and personal taxes as one entity. However, for accounting purposes, the business and all business transactions need to be separate from your personal transactions. If you don’t have a business checking account you will need to open one to keep your transactions separate. 2. Monetary Unit AssumptionThe Monetary Unit Assumption states that all transactions in your books must be in the same currency. If you headquarter in the United States then your transactions should be recorded in U.S. dollars. So, if you operate or have expenses overseas, those transactions must be recorded in U.S. dollars. The same goes for investments in cryptocurrency, etc. 3. Time Period AssumptionThe Time Period Assumption states that financial reports must show results for a specific period of time and that the period of time is clearly shown on all reports. The time shown for the three main financial statements does differ. For example, the Income Statement and Statement of Cash Flow report financial data over a period of time i.e. week(s), month(s), year(s) while the Balance Sheet is a cumulative report and shows data as of a specific date. 4. Cost PrincipleThe cost principle requires that financial transactions are recorded, forever, as the original and historical cost. What this means is that we do not adjust for inflation or appreciation. So, you might wonder how you ever record the increase or decrease in value of an asset, say an office building. First, you record it at the original purchase price. Then, when the asset is sold, and if there is appreciation on the property, it can be recorded as a gain on sale of assets on the Income Statement. 5. Full Disclosure PrincipleThe Full Disclosure Principle states that business owners, accountants, bookkeepers, etc. must include all pertinent information as related to the function of a business’ financial statements must be included with the reports. 6. Going Concern PrincipleThe Going Concern Principle requires that the business being reported on be considered to continue to exist and function into the foreseeable future. This essentially allows the accrual method of accounting be used. If the assessment is that the business will not be able to carry on then the reports must disclose that information. 7. Matching PrincipleThe Matching Principle requires that businesses utilize the accrual method of accounting. This means that expenses are recorded at the time the corresponding revenue is earned. So, if you have supplies that were used to create the product you sell, you would not record the expense of those supplies until the product was sold and delivered. 8. Revenue Recognition PrincipleThe Revenue Recognition Principle states that revenue must be reported when it is earned, i.e. when the service is performed or the good is delivered. This means that if you receive cash in advance of for a good or service it should be recorded as unearned revenue, a liability on your balance sheet. 9. Materiality PrincipleThe Materiality Principle allows an accountant to use their professional judgment to determine if errors found in the books are insignificant or not. If they find them to be insignificant then they choose to disregard the error. For example, if there was a $1.00 sale that wasn’t recorded per the Revenue Recognition Principle the accountant could disregard it. 10. Conservatism PrincipleThe Conservatism Principle requires that when a transaction can be recorded in more than one way choose the method that shows a decrease in net income and/or a decrease in assets/equity and/or an increase in liabilities. Essentially, when faced with a choice in how to represent the business choose the way that shows more expense or liability than the way that shows greater profits or more assets. Bookkeep & Prosper Here at Bookkeep & Prosper we specialize in remote digital bookkeeping with services customized to serve your business. Response time is guaranteed within 36 hours or the next month of service is free. We take cyber security seriously using military grade systems for anti-virus, data encryption, and password management. Each month after closing out your books we will review with you the financial statements including the Income Statement, Balance Sheet, and Statement of Cash Flows so that you have a clear view of how your business is performing. If you do not yet have budget and budget review as a standard part of your business then we will work to create a budget over the course of the first year of service.
If you are reading this article then you want to get serious about your books. Why not start today by scheduling an introductory phone call with me, Conner Schryver, and see if Bookkeep & Prosper is a good fit for your company. |
RSS Feed
