 QuickBooks Online 2024. Bank Reconciliation Myth Busting. Get ready and some coffee because we're going to be able to generate financials on call with QuickBooks Online 2024. Here we are in our gig, Gregatars 2024. QuickBooks Online Sample Company 5. We set up in a prior presentation opening up the major financial statement reports like we do every time the reports on the left hand side within the favorites right-clicking on the balance sheet to open a link in a new tab right-clicking on the profit and loss to open a link in a new tab doing the same for the trustee trial balance. Then we will tab to the right closing the hamburger changing that range going from 010124 tab 022924 tab would like to see it on a month by month breakout and then run the report tabbing to the right repeating the process hamburger closing it ranges changing them 010124 tab 022924 tab dropping down to the months and running to refresh tabbing to the right one more time hamburger closing the ranges they are changing 010124 tab 022924 tab dropping down to the months and running that one let's go back to the balance sheet we're now thinking about the bank reconciliation process a very important process number two internal control to make sure the financial statements first a word from our sponsor yeah actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us but but that's okay whatever because our merchandise is is better than their stupid stuff anyways like our CPA six pack shirts a must have for any pool or beach time mixing money with muscle always sure to attract attention yeah even if you're not a CPA you need this shirt so you can like pull in that iconic CPA six pack stomach muscle vibe man you know that CPA six pack everyone envisions in their mind when they think CPA yeah as a CPA I actually and unusually don't have tremendous abs however I was blessed with a whole lot of belly hair yeah allowing me to sculpt the hair into a nice CPA six pack like shape which is highly attractive yeah maybe the shirt will help you generate some belly hair too and if it does make sure to let me know maybe I'll try wearing it on my head and yes I know six pack isn't spelled right but three letters is more efficient than four so I trimmed it down a bit okay it's an improvement if you would like a commercial free experience consider subscribing to our website at accounting instruction.com or accounting instruction.thinkific.com are recorded correctly only second to the double entry accounting system itself now there's a couple things that I think are like misconceptions about the bank reconciliation process do in part to some of the new technology for example the bank feeds kind of confuse the process in some ways possibly making the bank reconciliation easier but also kind of confusing the idea of what the bank reconciliations are how they are performed and what the importance of them will be to the bookkeeping process there's another misconception about basically what the bank reconciliation is in terms of is it a report or a process and really when we're talking about a bank reconciliation we're talking about a report that's reconciling the checking account balance to what is on the bank statement at any point in time but to get that report we're going to go through the process of reconciling and so that's what we'll do as the bookkeeper we'll do the bank reconciling process so that we can generate that report in the event that we need to in an audit and by doing that we're also going to be providing assurance not only over the checking account but over the entire bookkeeping system to some degree now the first big internal control that we have to get our bookkeeping correct is the software itself because the software forces us to have a double entry accounting system meaning assets equal liabilities plus equity that is a huge internal control that we can use to better make sure our bookkeeping is accurate now the software forces us to do that so oftentimes when people use QuickBooks they get upset at certain things that QuickBooks will not let them do because QuickBooks is actually trying to do them a favor and say well if you do that you're going to throw out the double entry accounting system so they won't let you do it so that's so if you're able to kind of see how QuickBooks works and then put the data into QuickBooks my level as an accountant of someone's bookkeeping meaning if they gave me their bookkeeping and it was done by hand for example they gave me just an income statement that I'm going to upload into the the tax software for example for United States income taxes I don't have a whole lot of confidence that that their bookkeeping is actually accurate that might be a you know a system that you have to use but it's probably you probably have errors from year to year just due to the fact that you're not using you know a double entry accounting system and these days of course the software you don't even have to know what double entry accounting system is if you use some kind of software it'll basically force you to be using a double entry accounting system so me as an accountant if someone gives me their bookkeeping and it's at least in accounting software then I have a lot more faith in the soft in the financial statements than if they just give me like an income statement you know so again you got to do what you have to do to get the taxes done at the end of the year but if you want to be more accurate over time using some kind of software is you know a huge way to be more accurate over time because it gives you a balance sheet and it gives you the double entry accounting system okay then the second big internal control is the bank reconciliations and the bank reconciliations will give you assurance not just over cash but also over the entire bookkeeping process and this is kind of important to be able to explain to people because a lot of people are going to say uh they'll say hey look I I know that my cash balance is fine because I check it every single day I have online banking and I can see what's in the in the cash balance and my my balance over here in QuickBooks is pretty close to that so I feel pretty confident that cash is okay but that's not really what we're trying to do here we're we're trying to reconcile the entire bookkeeping process so in other words if I look at the flow chart this is a desktop flow chart we're using for online purposes just to look at the flow of the forms we have been breaking out the flow of the accounting process into different cycles so the entire accounting process is one big cycle that you can think repeating in essence on a monthly basis and then on a yearly basis and then the cycles within a cycle we have the vendor cycle the customer cycle and the employee cycle so the vendor cycle at the end of it we expect money to be going out for goods and services that we purchase and of course you'll note that cash will be involved money is going out money is part of that cycle it's part of the lifeblood of the entire business it's the it's the blood in the veins of the body of the financials behind the business and then on the customer side we expect money to be eventually coming in for goods and services that we provide two customers so again the money is circulating through the system it's part of the whole process and then on the employee side or payroll we know that of course money is going out for specifically uh payroll purposes so that means if I can verify not just the balance of money but every single transaction if I have more confidence about each of the actual individual cash transactions I have more confidence over the entire accounting system so if I go back on over here then the idea isn't to say well cash is pretty close to what's on the bank balance so I feel pretty good that no one robbed me for cash the idea is to be able to drill down on the cash balance and say not only is the ending balance look pretty accurate but each of the transactions in the cash account of which there are more transactions than any other account typically due to the fact that cash is the lifeblood of the company meaning we have more transactions and more transaction types typically in the cash account than any other account on on the on the financial statements if I can verify all of these individual transactions we have because we have a double entry accounting system I'm also verifying the other side of the transaction and the other side of the transaction oftentimes is basically creating the entire income statement is built you know by by this process some companies might be building their entire books just from the cash transactions right so that means if you can verify the cash transactions you have more confident over the whole financial statement process so then the question is well how exactly would I do that how am I going to not just verify the ending balance in cash but verify each of the transactions that happened in cash so I can look at the timing statement of the income statement well if we look at the bank reconciliation over here or a bank statement this is a mock bank statement that we would get on a monthly basis we're not looking at the running balance from the bank but the bank statement as of a point in time that's why the bank statement is still important because it has a specific cutoff period so this is as of the end of january that we're going to be saying here and we know if we reconciled in the prior period then that's going to be our starting point and these are going to be the increases these are going to be the decreases in summary to get us to the ending amount and then of course we have the detail in our bank statement of the deposits and the withdrawals or money that's coming out of the checking account so we'll note that this number right here 61 241 85 is what is on the bank statement as of 131 the end of the month now if I go over to QuickBooks as of that same point in time notice this is a as of the end of january right here we don't have the same number we have something different here so we could say well that's pretty close it's close enough but what we would like to do is see exactly what the difference is between what is on our books and what is on the bank's books now you might say well hey if there's a difference there must have been an error that happened but that's not generally the case because in a normal full service bookkeeping system we will never have our balance possibly tie out exactly to what's on the bank at any given time due to the fact that we might have outstanding transactions that we haven't put in place for example it used to be that we had a lot more of these due to the fact that we used checks more often and when you write a check you have to actually write the check we know about the transaction but the check then has to be mailed the other person has to put it into the bank and the check has to clear therefore those outstanding checks are going to be part of the difference between what we know on our side and what the bank knows and with deposits you have a similar thing although deposits are clearing a lot faster they still could take like three days to clear though even if it were like an electronic transfer so if we're doing a full service accounting system we would make the deposit on our side we would know about it the quick book system or the bank doesn't know about it until it processes like three days later and at that point in time then it'll process so that means that our balances even if we did everything perfectly will be different from the the bank balance and if we can reconcile exactly what that difference is meaning i'm going to list out the checks that we know about because we entered into our system but that the bank doesn't know about and the deposits that we know about and the bank doesn't know about i can look at my balance and see exactly what the difference is outstanding checks and deposits to get me to the bank balance and if i know exactly what the difference is not only do i have confidence about my ending balance here i also have confidence about all of the transactions because if i'm if i'm there to the penny then that means that that i'm not going to have multiple transactions that add up to the difference in other words if i have a reconciliation that's off by like five dollars you might say well that's not a big deal for the cash account but that five dollar difference could have been from 20 checks and three deposits or something like that which means your income statement could be completely out of whack even those though there's only a five dollar difference on the uh financials for the cash but if you get it down to the penny it's very unlikely that that that that you could get it exact even by by having multiple transactions that are out of balance on debits or credits or deposits and uh withdrawal so that's the idea that we're trying to do we're trying to reconcile to get it perfect and we should be able to do it because we're just going to tick and tie what's on our side uh to what's on the bank side now these days note that we have more electronic transfers uh these days than we had in the past so that means the timing differences are going to be less if we do electronic transfers also these days because we're we're more confident about the electronic transfers we might not actually record them on our side but rather wait till they clear the bank before we record them in that case we're not doing a full service accounting system we're basically just building our books from the bank and in that case if we were doing that then it would be true that our ending balance here would always tie out to what's on the bank statement we wouldn't have any outstanding items because we're not doing a full service system we're not entering our side and then checking it to the bank that's a full service accounting system where you can see it has an added layer of internal control because now two people are doing separate sets of books for the same thing we are and the bank is and then we're matching those two on the other hand if we wait till it clears the bank then really only one person is actually recording the transactions as they happen the bank and we're just taking what the bank gives us and recording it so it's still important to the to do the bank reconciliation in that case but it will be very easy because all of our transactions just came directly from the bank so if so so basically we would then do our bank feed transactions over here and as they come through on the bank transactions we'll just build our books from what what is given to us now we'll do that more when we get into the section or course on our bank feeds we'll basically build our books in essence from the transactions from the bank although it's not a full service accounting system it totally makes sense to do that because it's easy to do in certain situations so if you have all of your transactions that are just electronic transfers that you're paying for for the expense side and if your deposit side or all electronic or all transactions from like gig work or something like that you might be able to do your entire bookkeeping system just from getting the information directly from the bank but there's going to be a lot of wrenches that get thrown into that system anything that's accrual based will kind of mess things up so if i go back to the balance sheet if you have to deal with accounts receivable that's going to mess things up if you have to deal with inventory that's going to mess up your system prepaid insurance is going to mess up your system the furniture and fixture often will mess up the system if you do accounts payable it might mess things up sales tax also complicates the things uh as well and the type of income that you're generating will also make it more difficult on the revenue side of things we'll talk more about that when we get to the bank feed course or section now the other misconception i think people often have is thinking that the the reconciling process is the bank reconciliation so in other words when i reconcile what happens is i i go over here and then if we have the bank transactions on and we're pulling the information in from the bank notice that that we can either be building our books from the bank transactions or we might be doing the entries on our side and then using the bank transactions to match to what we've already done in which case the bank transactions would basically be helping us with the bank reconciliation process because now the bank transactions would just be a double check that we have entered the information into the system now when we go into the reconciliation here what we would do and we'll do this in a future presentations where we would get started with the bank reconciliation and the reconciliation will allow us to basically tick and tie what's on our bank statement to what is on the books and once we get the reconciliation down to zero meaning there's there's we've tick and tied everything on the bank statement onto our books then that we're done with the bank reconciliation process but oftentimes people kind of leave it there they forget that the end result is actually a bank reconciliation report which will take the ending balance as of the the point in time in this case the end of January and compare it to our book balance and show us the difference which would be the outstanding checks and the outstanding deposits so the general idea when we do the bank reconciling process is we're just going to take each transaction that's on our bank statement and then tie it out to each transaction that is on our books and if it's on the bank statement it should be in our books unless there's an error on the bank side which isn't typically the case and if it's not then we would add it to our books and then if it's on our books but it's not on the bank statement it might not be an error because it might be an outstanding check or deposit that we know about the bank doesn't know about so that means that if we tick and tie everything on the bank statement onto our books we might still have some things that are unticked that are on our books that aren't on the bank and we can still reconcile because the reconciliation process will say there's a zero difference between the cleared balances but the report that will be generated will show those unchecked amounts as the difference the reconciling items and so that's what we'll do basically in future presentations we'll go through the bank reconciliation for the first two months and we'll see that the first month in January is often a little bit more complex and then once you have the first month done in February uh it should be a little bit easier and we can do it more smoothly so the bottom line is this the bank reconciliations are huge it's a huge internal control every company big small should be doing uh the bank reconciliations the bank feeds can help with the bank reconciliations and if you're building your books entirely from the bank feeds the bank feeds will make the reconciliation the reconciliation will be easy really easy to do but the bank feeds don't exactly just remove the need to do reconciliations unless maybe again if you're doing the reports the books directly all completely from the bank feeds but even then i would still do the reconciliation you know because it's just two clicks to do it you can you can you're you're basically double checking that you haven't entered things twice or that you haven't entered something but in any case the ending balance should tie out exactly to what's on your books at any given time if that were the case so so the bank feeds you'd still want to do the bank reconciliations and when you're done with the bank reconciling process note that there will be reports bank reconciliation reports which are really what the end result is everything that you didn't check off will generate a report showing the difference between what's on our books as of a point in time the end of the month typically and what's on the bank statement as of a point in time and if we get that done exactly then we have confidence not only about the big ending balance but but about the entire all the transactions in the system and that's important to be able to explain to people because again a lot of people just think you're just trying to reconcile cash because cash is important in and of itself and it could be people could steal cash and whatnot but like i said you want to be able to say hey look no this is about the whole the whole accounting system and given a double check an internal control on the whole thing the whole income statement basically we're getting some assurance by doing this reconciliation process if somebody has their books in quickbooks and they've done proper bank reconciliations meaning they haven't forced an adjustment in the bank reconciliation process a plug a journal entry then my confidence on the bookkeeping has gone up hugely like i have way more confidence in the financial statements you could still have errors things might not be posted to the right place could be transactions that are wrong but you are way way better than if you didn't do bank reconciliations and if you didn't use accounting software at all