Here are step-by-step instructions to help you reconcile statements in QuickBooks. You'll also find tips and tricks to make this process go smoothly. Remember: this is a critically important task that must be performed each and every time you receive a bank or credit card statement. Here's why:
Finding Errors. It's true that banks don't make mistakes very often, but when they do you only have a small window of time to alert the bank. Don't let bank errors cost your business money.
Verifying Entries. Reconcile statements regularly for bank accounts and credit card accounts - it's one very good way to ensure your entries are being recorded properly in QuickBooks. Accurate entries = accurate financial reports.
Takes Less Time. Don't wait to reconcile statements - the more time that goes by, the more transactions that pile up, means the more time it will take. Do it each month as soon as the statement is available. It will go quickly and smoothly.
Now that you know why we need to reconcile statements, let's begin.
But first, before we actually start, look over the bank or credit card statement and make sure of these two things. This will help the process go more smoothly:
If you are working with a checking account, look at the area of the statement that shows electronic withdrawals, such as ATM withdrawals and debit card purchases. Often, there will be several items in that section that are not in QuickBooks. Enter these now.
Enter any bank service charges. You can enter them later in the Begin Reconciliation window, but I suggest you enter them now using the Write Checks screen (Control-W). Locate the ** below to see why.
1. Open QuickBooks. From the top menu, select Banking, then select Reconcile. The Begin Reconciliation window opens.
2. From the Account drop-down box, select account you wish to reconcile. You can use this process for any type of account that appears here, and that you also have a statement for.
3. Enter the Statement Date as shown on the bank statement.
4. Verify that the Beginning Balance in QuickBooks is the same as the beginning balance on the bank statement. If these amounts are not the same, you may have changed or deleted a previously reconciled transaction. See #b below.
5. Enter the Ending Balance as shown on bank statement.
6. You can enter bank service charges here, but I suggest you enter them from the Write Checks screen (Control-W) instead. You'll see why below.
7. If the statement shows any interest earned, record it in the Interest Earned box. From the Account drop-down box, select an Other Income account called Interest Earned. If this account does not exist, scroll up to create it.
8. Click Continue. The Reconcile window opens.
9. If you've waited for more than one month to reconcile, check the small box at the top of the screen that says, "Hide transactions after the statement's end date." This will remove all transactions that were posted after the statement ending date, making this screen a lot less cluttered.
10. Notice that there are two columns-—one for Checks and Payments and one for Deposits and Other Credits:
Checks and Payments - these are shown on the bank statement in at least two places: numbered checks are located in one place, ATM card and debit card transactions are located in another place, and sometimes automatic bill payments are located in still another place. Check off all items in QB that also appear on the statement.
Once you have checked off all of these in QB, including the Bank Service charges, look at the bottom left corner in QB. Notice a line that says, "Checks and Payments." It shows the total amount you checked off in QB for the left side of the screen. Now, someplace on your bank statement locate a line that says "Total Subtractions," or something similar. Compare the number in QB with the number on the statement. If they are exactly the same, to the penny, proceed with the Deposits and Other Credits. If they are not exact, to the penny, go back and double check your work on this side of the screen.
** If you entered the bank service charges in the Begin Reconciliation window instead of the Write Checks screen, the amounts here would be different by the amount of the service charges.
Deposits and Other Credits - place a checkmark next to each entry that appears on the both the bank statement and in the Reconcile window.
Now, look at the lower left corner in QB. Notice the line that says, "Deposits and Other Credits." The number here is the total amount of transactions you checked on the right side of the screen. On your bank statement there should be something that says, "Total Additions," or something similar. Compare these two numbers. If they are exactly the same, to the penny, then you should have a Zero Difference in the lower right corner at this point. If they are not exactly the same, then go back and check your work on this side of the screen.
If all entries were made correctly, when you are finished checking off everything, the Difference (located in the bottom right corner) will be zero. If it is zero, click Reconcile Now.
IMPORTANT: when given the opportunity, print a Detailed report and staple it to the bank statement. If you are running QuickBooks Pro, the printed Detailed report will be your only printed record should you ever need to go back and see a previous reconciliation report.
If the difference was zero, congratulations! You finished the reconciliation successfully!
But......what if the Difference is not Zero? Then what?
This means that errors were made. You'll need to look at the following:
Checkmarks may be placed in QB next to items that do not appear on the statement. Or, some items may not have been checked that should have been.
Carefully verify that all amounts in QuickBooks match the bank statement amounts exactly.
Verify that all entries on the statement are also in QuickBooks.
Perhaps the bank made a mistake by recording an item incorrectly on its end. If this is the case, and you can verify that the Difference is the amount of the bank’s error, make an adjusting entry in QB in the amount of the error. The adjusting entry can be made from the Write Checks screen (Control-W) or theMake Deposits screen, depending on if it is in your favor or not. Set up a new expense account called Bank Error and post the amount there. Then next month, when hopefully the error is corrected on your bank statement, make another opposite entry to reverse this one, using the Bank Error account again. Check them off during each month's reconciliation, and do not delete them after they are reconciled.
Very Important: always try to make the Difference amount zero before clicking Reconcile Now!
Here are 3 situations when you may want to get outside help from a Certified QuickBooks ProAdvisor or other accounting professional:
a. Pro versions of QuickBooks allow access only the last month’s reconciliation report. Premier versions allow access to all previous reconciliation reports. If you need a previous reconciliation report and are running QuickBooks Pro, ask your accountant if he/she is running Premier. If so, have your accountant upload your file to his/her computer, then generate the necessary reports.
b. Never delete or change a transaction after it has been reconciled. If you do, it alters the subsequent reconciliation, making the Beginning Balance in QB different by the amount of the deleted transactions. If the deleted transactions were re-entered, proceed with the reconciliation as if the Beginning Balance was not affected. You will see the re-entered transactions in the Reconcile screen - check them off as if they appeared on the statement, and check off all other transactions that appear on the statement. You should arrive at a Zero Difference if all entries were made correctly. If there is still not a zero balance, you may need outside help.
c. If the difference amount was not zero AND you clicked Reconcile Now anyway, QuickBooks made a general journal entry to force the check or credit card register to agree with the statement. QB used either Open Balance Equity account, or the Reconciliation Adjustments account as the offset (depending on which year of QB you run). Because these accounts should always have a zero balance, contact your accountant if you ever see a balance here.
Remember that you can reconcile statements for any balance sheet account... checking, savings, credit card, auto loan, mortgage, lines of credit, any other type of loan or note.
I hope this helps you reconcile statements in QuickBooks.