Chapter 13
Balancing Your Bank Accounts
In this chapter:
• Work in the QuickBooks reconciliation windows
• Find and fix discrepancies
Reconciling a bank account is one of the most important tasks connected with financial record keeping—but ironically, it’s also one of the most avoided tasks. When you use QuickBooks, however, the job of reconciling your accounts becomes a very manageable one.
Reconcile in QuickBooks
Most of the time, performing a bank reconciliation in QuickBooks is easy and straightforward. If you’ve been keeping your QuickBooks up to date, you shouldn’t have to make a lot of “catch-up” entries because most of the data you need is already in your bank register.
The following sections explain the steps involved in a reconciliation in the order that you’ll be performing them. By the way, these same steps apply to reconciling a credit card account.
The Begin Reconciliation Window
Reconciling your bank account starts with the Begin Reconciliation window, which you open by choosing Banking | Reconcile (see Figure 13-1). If you have more than one bank account, or you have credit card accounts you reconcile in addition to bank accounts, select the account you want to reconcile from the drop-down list in the Account field.
FIGURE 13-1 |
Enter your ending balance and confirm your starting balance in the Begin Reconciliation window. |
Enter the statement date from your bank statement and then check the Beginning Balance field in the window against the beginning balance on the bank statement. (Your bank may call it the starting balance.) If your beginning balances match, enter the ending balance from your statement in the Ending Balance field. If this is the first time you’re reconciling the bank account in QuickBooks, your Beginning Balance field in QuickBooks will automatically be zero. Enter the ending balance from your statement in the Ending Balance field in QuickBooks.
If the beginning balances don’t match and this is not the first time you’re reconciling the bank account in QuickBooks, read “Troubleshooting Differences in the Beginning Balance” later in this chapter, and then return to this section of the chapter to perform the reconciliation.
Entering Interest Income and Service Charges
Your bank statement lists interest earned and bank service charges if either or both are applicable to your account. Enter those numbers in the Begin Reconciliation window and choose the appropriate accounts for posting.
If you use the Bank Feeds feature (aka online banking) and the interest payments and bank charges have already been entered into your register as a result of downloading transactions, do not enter them again in the Begin Reconciliation window—they’ll be in the register list you see in the next window, and you can clear them the way you clear checks and deposits. More about working with Bank Feeds in Chapter 16.
Use the Service Charge field to enter a standard monthly charge. Standard bank charges typically do not include special charges for bounced checks, fees for electronic bank transfers, or any purchases you made that are charged to your account, such as the purchase of checks or deposit slips. Those should be entered in your bank register as individual transactions, and you can use the Memo field to explain the transaction. This will make them easier to find in case you have to talk to the bank about your account.
Working in the Reconcile Window
After you’ve filled out the information in the Begin Reconciliation window, click Continue to open the Reconcile window, shown in Figure 13-2. You can arrange the way transactions are displayed to make it easier to work in the window.
FIGURE 13-2 |
Uncleared transactions appear in the Reconcile window. |
Sorting the Data
By default, QuickBooks sorts transactions first by date, and then by transaction number. For example, in the Checks And Payments pane, if multiple checks have the same date, those checks are sorted in numerical order.
Reconciling is easier if you sort the data to match the way your bank arranges the statement. For instance, if you have a lot of electronic payments in addition to checks, and your bank lists the electronic payments separately from checks, click the CHK # column header to list withdrawals without check numbers separately from checks.
Eliminating Future Transactions
If the list is long, you can shorten it by selecting the option Hide Transactions After The Statement’s End Date. Theoretically, transactions that weren’t created before the ending date couldn’t have cleared the bank. Removing them from the window leaves only those transactions likely to have cleared. If you select this option and your reconciliation doesn’t balance, deselect the option so you can clear the transactions in case one of the following scenarios applies:
• You issued a postdated check and the recipient cashed it early. Since occasionally a bank won’t enforce the date, this is a real possibility.
• You made a mistake when you entered the date of the original transaction. You may have entered a wrong month or even a wrong year, which resulted in moving the transaction date into the future.
Clearing Transactions
Now you must tell QuickBooks which transactions have cleared. If this is your first bank reconciliation in QuickBooks, on the Deposits And Other Credits side of the Reconcile window you’ll see a deposit transaction that represents the beginning bank balance you (or your accountant) entered either via a journal entry (read Chapter 17 to learn more about journal entries) or directly in the check register when you set up your QuickBooks data file. You’ll need to “clear” this transaction during your first reconciliation. When you clear a transaction in the Reconcile window, a check mark appears in the leftmost (Cleared) column to indicate that the transaction has cleared the bank. If you clear a transaction in error, click again to remove the check mark—it’s a toggle.
Use the following shortcuts to speed your work:
• If all, or almost all, of the transactions have cleared, click Mark All. Then deselect the transactions that didn’t clear.
• Mark multiple, contiguous transactions by dragging down the Cleared column.
• Click the Highlight Marked check box so that the items you mark as cleared have a shaded background, making them easier to distinguish from those that haven’t cleared.
• If the account you’re reconciling is enabled for online access (using the QuickBooks Bank Feed feature), click Matched to automatically clear all transactions that were downloaded and matched. QuickBooks asks for the ending date on the statement and clears each previously matched transaction up to that date. See Chapter 16 for more information about using the Bank Feeds feature.
As you check each cleared transaction, the Difference amount in the lower-right corner of the Reconcile window changes. The goal is to get that figure to 0.00.
Adding Transactions During Reconciliation
While you’re working in the Reconcile window, if you find a transaction on the statement that you haven’t entered into your QuickBooks software—such as one of those ATM transactions you forgot to enter—you don’t have to leave the Reconcile window to remedy the situation. You can just enter the transaction into your register.
To open the bank account register, right-click anywhere in the Reconcile window and choose Use Register from the shortcut menu. When the account register opens, record the transaction. Return to the Reconcile window, where that transaction is now conveniently waiting for you to check it off as cleared.
Adding Undeposited Funds During Reconciliation
If the statement shows a deposit that doesn’t appear in your reconcile window, don’t add the deposit to your register until you check the Payments To Deposit window (choose Banking | Make Deposits). Most of the time, you’ll find the payments listed there, still awaiting deposit, even though you already may have gone to the bank and deposited those checks.
Select the payments that match the total shown on the bank statement and go through the Make Deposits function. When you’re finished, the deposit appears in the Reconcile window. If the deposit isn’t in the Payments To Deposit window, then you forgot to enter a transaction. Enter the transaction now, using the appropriate transaction window. Make sure you deposit it into the bank account to have it appear in the Reconcile window.
Voiding or Deleting Transactions During Reconciliation
Sometimes you find a transaction in the Reconcile window that shouldn’t be there. This commonly occurs if you mistakenly entered an ATM withdrawal twice, for example. Or perhaps you forgot that you’d entered a deposit, and a couple of days later you entered it again. QuickBooks offers you two ways to remedy the situation: you can either delete or void the transaction.
To delete a transaction, double-click its listing in the Reconcile window to open the original transaction. Then right-click and select Delete. QuickBooks asks you to confirm the deletion. The transaction disappears from the Reconcile window and the bank register.
To void a transaction, double-click its listing in the Reconcile window to open the original transaction. Then right-click and select Void, which changes the amount to zero.
Voiding a transaction is almost always the preferred method of removing a transaction, because QuickBooks retains most all the details of the transaction and allows you to add a note for future reference. Deleting removes a transaction completely, making it more difficult for your accountant or you to track down a change in an account balance or report that occurred as a result of the deletion.
Editing Transactions During Reconciliation
Sometimes you’ll want to change some of the information in a transaction. For example, when you see the real check, you realize the amount you entered in QuickBooks is wrong. You might even have the wrong date on a check.
Whatever the problem, you can correct it by editing the transaction. Double-click the transaction’s listing in the Reconcile window to open the original transaction window. Enter the necessary changes and close the window. Answer Yes when QuickBooks asks if you want to record the changes, and you’re returned to the Reconcile window where the changes are reflected.
Resolving Missing Check Numbers
Most banks list your checks in order and indicate a missing number with an asterisk on the bank statement. For instance, you may see check number 5003 followed by check number *5007 or 5007*. When a check number is missing, it means one of three things:
• The check is still outstanding.
• The check number is unused and is probably literally missing.
• The check cleared in a previous reconciliation.
If a missing check number on your bank statement is puzzling, you can check its status. To see if the check cleared in the last reconciliation, open the Previous Reconciliation report (discussed later in this chapter) by choosing Reports | Banking | Previous Reconciliation.
To investigate further, right-click anywhere in the Reconcile window and choose Missing Checks Report from the shortcut menu. When the Missing Checks dialog opens, select the appropriate account (if you have multiple bank accounts). You’ll see asterisks indicating missing check numbers, as seen in Figure 13-3.
FIGURE 13-3 |
A few checks are missing from the QuickBooks bank register. |
If a check number is listed in your Missing Checks report, it doesn’t exist in the register. Here are some of the most common reasons why it may be missing:
• You deleted the check that was assigned that number.
• The check is physically missing (usually because somebody grabbed one or more checks to carry around).
• Checks jammed while printing and you restarted the print run with the number of the first available check. QuickBooks doesn’t mark checks as void in that case; it just omits the numbers in the register so they show up in the Missing Checks report.
Finishing the Reconciliation
If this isn’t the first reconciliation you’re performing, there’s a good chance that the Difference figure at the bottom of the Reconcile window displays 0.00. If there is a difference, refer to “Troubleshooting Differences in the Beginning Balance” later in this chapter.
Click Reconcile Now and then print either a summary or detail (or both) reconciliation report.
Printing the Reconciliation Report
When you have a balanced reconciliation (even if it results from an adjusting entry), QuickBooks offers congratulations and also offers to print a reconciliation report. The dialog has a Close button to skip the report, but it’s a good practice to print and keep a copy of the Reconciliation Detail report with your bank statement.
Whether you print, view, or cancel, QuickBooks saves the reports and you can view them in the future by choosing Reports | Banking | Previous Reconciliation.
Deciding on the Type of Report
QuickBooks offers two reconciliation reports: Detail and Summary. Here are the differences between them:
• The Detail Report shows all the transactions that are cleared and all the transactions that haven’t yet cleared as of the statement closing date. Any transactions dated after the statement closing date are listed as New Transactions.
• The Summary Report breaks down your transactions in the same way, but it doesn’t list the individual transactions; it shows only the totals for each category: Cleared, Uncleared, and New.
Selecting the Detail report makes it easier to resolve problems in the future, since you have a list of every check and deposit and when it cleared.
Printing a Reconciliation Report
If you opt to print one or both reports, the Print Reports dialog opens so you can select the printer. The Print Reports dialog offers the following options:
• Print the report to the selected printer. You can file the printed report with that month’s bank statement in case you ever need to refer to it.
• Print the report to a file—ASCII text, comma delimited, or tab delimited (this option is not available if you decide to print both reports).
Viewing the Last Reconciliation Report
Even if you don’t display or print a reconciliation report after you reconcile an account, QuickBooks saves the report and stores it for you as a Previous Reconciliation report. This can be extremely helpful when you’re trying to track down a discrepancy in your beginning bank balance the next time you do a reconciliation.
Click Reports | Banking | Previous Reconciliation to open the Select Previous Reconciliation Report dialog. You’re given the option of running the Summary, Detail, or both reports in one of two ways:
• Include transactions cleared at the time of the reconciliation—essentially giving you a snapshot of what the reconciliation looked like at the time it was completed. This report will print only as a PDF file.
• Include transactions cleared at the time of the original reconciliation plus any changes made to the transactions since original reconciliation. I find that this report is the most effective in tracking down a discrepancy. Once it’s displayed, you can export this report to Excel by clicking the Excel button at the top of the reconciliation report window.
If You Don’t Balance
If the account doesn’t reconcile (the Difference figure isn’t 0.00), and you don’t have the time, energy, or emotional fortitude to track down the problem at the moment, you can stop the reconciliation process without losing all the transactions you cleared.
Click the Leave button in the Reconcile window and do something else for a while. Have dinner, play with the cat, go to the movies, clear your mind. When you restart the reconciliation process, all the entries you made are still there.
Finding and Correcting Problems
When you’re ready to investigate the cause of a difference between the ending balance and the cleared balance, follow the guidelines presented here to find the problem.
Count the number of transactions on the bank statement. Then look in the lower-left corner of the Reconcile window, where the number of items you have marked cleared is displayed. Mentally add another item to that number for each of the following:
• A service charge you entered in the Begin Reconciliation window
• An interest amount you entered in the Begin Reconciliation window
If the numbers differ, the problem is in your QuickBooks records; there’s a transaction you should have cleared but didn’t or a transaction you cleared that you shouldn’t have.
If you’re sure you didn’t make any mistakes clearing transactions, do the following:
• Check the amount of each transaction against the amount in the bank statement.
• Check your transactions and make sure a deposit wasn’t inadvertently entered as a payment (or vice versa). A clue for this is a transaction that’s half the difference. For example, if the difference is $220.00, find a transaction that has an amount of $110.00 and make sure it’s a deduction if it’s supposed to be a deduction (or the other way around).
• Check for transposed figures. Maybe you entered a figure incorrectly in the register, such as $549.00 when the bank clears the transaction as $594.00. A clue that a transposed number is the problem is that the reconciliation difference can be divided by nine.
If you find the problem, correct it. When the Difference figure is 0.00, click Reconcile Now.
ProAdvisor Tip: Consider having somebody else check over the statement and the register, because sometimes you can’t see your own mistakes.
Making an Adjusting Entry
You may not be able to find a reason for the difference in the beginning balances. If you’ve reached the point where it isn’t worth your time to keep looking, go ahead and click the Reconcile Now button. QuickBooks will present you with an option to make an adjusting transaction at the end of the reconciliation process that will post to an expense account that is automatically created for you, called Reconciliation Discrepancies. If you ever learn the reason for the difference, you can void the adjustment made in this account post and then clear the correct transaction.
Troubleshooting Differences in the Beginning Balance
If this isn’t the first time you’ve reconciled the bank account, the beginning balance that’s displayed on the Begin Reconciliation window should match the beginning balance on the bank statement. That beginning balance is simply the ending balance arrived at from the last reconciliation you did.
If the beginning balance doesn’t match the statement, it means that you or someone else working in your QuickBooks file did one (or more) of the following:
• You changed the amount on a transaction that had previously cleared.
• You voided a transaction that had previously cleared.
• You deleted a transaction that had previously cleared.
• You removed the cleared check mark from a transaction that had previously cleared.
• You manually entered a cleared check mark on a transaction that had not cleared.
You have to figure out which one of those actions you took after you last reconciled the account, and luckily, QuickBooks has a tool to help you. Click the Locate Discrepancies button on the Begin Reconciliation window to open the Locate Discrepancies dialog seen here:
Viewing the Discrepancy Report
Click Discrepancy Report in the Locate Discrepancies dialog to see if any transactions that were cleared during a past reconciliation were later changed or deleted (see Figure 13-4).
FIGURE 13-4 |
Someone uncleared a transaction that was cleared during a previous reconciliation. |
This report shows you the details of the transactions that cleared during a previous reconciliation if any changes were made to those transactions since that reconciliation. If the Reconciled Amount column shows a positive number, the original cleared transaction was a deposit; a negative number indicates a disbursement.
The Type Of Change column provides a clue about the action you must take to correct the unmatched beginning balances:
• Uncleared The check mark was removed in the Cleared column of the register.
• Deleted You deleted the transaction.
• Amount You changed the amount of the transaction. The difference between the amount in the Reconciled Amount column and the amount in the Effect Of Change column is the amount of the change.
This report doesn’t offer a Type Of Change named Void, so a voided transaction is merely marked as changed, and the text in the Type Of Change column is Amount. A transaction with a changed amount equal to and opposite of the original amount was almost certainly a transaction you voided after it cleared.
Correcting Opening Balance Differences
Use the information in the Discrepancy Report to correct the problems you created by changing previously cleared transactions.
Correcting Changed Transactions
If you cleared or uncleared a transaction manually, open the bank register and undo this action by clicking in the Cleared column (designated by a check mark) until a check mark appears next to the transaction. If you changed the amount of a transaction that had cleared and the transaction still exists in the register with an amount, change the amount back to the original amount for that transaction.
Replacing Voided or Deleted Cleared Transactions
If the beginning balance is incorrect because you removed a transaction that had cleared (either by voiding or deleting it), you have to put the transaction back into your register. You can get the information you need from the Discrepancy report.
• If a transaction is there but marked VOID, re-enter it, using the data in the reconciliation report. That transaction wasn’t void when you performed the last reconciliation; it had cleared. Therefore, it doesn’t meet any of the reasons to void a transaction.
• If a transaction appears in the reconciliation report but is not in the register, it was deleted. If it cleared, it can’t be deleted. Re-enter it, using the data in the reconciliation report.
• Check the amounts on the printed check reconciliation report against the data in the register to see if any amount was changed after the account was reconciled. If so, restore the original amount.
If you re-enter a transaction that was voided or deleted after it cleared, and you put a check mark into the Cleared Column, QuickBooks adds it to your Reconcile window with a check mark already in place. This action doesn’t adjust your opening balance on the Begin Reconciliation window, but it does readjust the math so the current reconciliation works and next month’s opening balance will be correct.
Undoing the Last Reconciliation
QuickBooks lets you undo the last reconciliation, which means that all transactions cleared during the reconciliation are uncleared. This is a good way to start over if you’re “stuck” with the current reconciliation and the problems seem to stem from the previous reconciliation (especially if you forced the previous reconciliation by having QuickBooks make an adjusting entry).
Click the Undo Last Reconciliation button on the Begin Reconciliation window. QuickBooks suggests you click Cancel and back up your company file before continuing. Backing up is an excellent idea, because you can restore the data back to its reconciled state in case you don’t get the results you were expecting. Then, begin reconciling again, click Undo Last Reconciliation, and click Continue.
QuickBooks performs the following actions:
• Removes the cleared status of all transactions you cleared during the last reconciliation
• Leaves the amounts you entered for interest and bank charges so you don’t need to re-enter them
When the process completes, QuickBooks displays a message to confirm that fact. Click OK to clear the message and return to the Begin Reconciliation window.
If QuickBooks made an adjustment entry during the last reconciliation, click Cancel to close the Begin Reconciliation window. Open the account’s register and delete the adjustment entry—it’s the entry posted to the Reconciliation Adjustment account. Hopefully, this time the reconciliation will work and you won’t need another adjusting entry.
Start the reconciliation process again for the same month you just “undid.” When the Begin Reconciliation window opens, the data that appears is the same data that appeared when you started the last reconciliation—the last reconciliation date, the statement date, and the beginning balance are back.
Enter the ending balance from the bank statement. Do not enter the interest and bank charges again since they were not removed when QuickBooks undid the last reconciliation. Instead, find them in the Reconcile window and clear them.
Good luck!
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