 Zero Accounting Software 2023 Bank Reconciliation with Bank Feeds for the First Month of Operations. Get ready to become an Accountant Hero with Zero 2023. Here we are in our first award from our sponsor. Well, actually these are just items that we picked from the YouTube Shopping Affiliate Program, but that's actually good for you because these aren't things that we're just given to us from some large corporation which we don't even use in exchange for us selling them to you. These are things that we actually researched, purchased and used ourselves. Bayer Dynamic? Not sure if I said that right, but this is the DT770 Pro 250 OHM Studio Reference Closed Back Headphones. I wear headphones basically every day for a large part of the day. They are important to me, therefore I've gone through many different kinds of headphones. I've had these for some time and they've worked quite well. They fit over my ears, but I'm still able to put my glasses on under the headphones. The headphones not pinching too tight on the glasses to give me a headache, which is nice. The quality of the patting is good and it has lasted for some time. I've had these for some time now and they haven't gotten all torn up on me or anything like that. I also like that I have a cord when I'm doing my recordings as opposed to a USB centered headphone because that frees up a USB port and I find the USB headphones to be less reliable. They come with an audio jack that looks like this, which is useful for me because that plugs into my audio interface. However, if you want to use the headphones for some other purpose, I believe it's fairly easy to get a converter to other types of audio jacks. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com where we have many different courses. You can purchase one at a time or have a subscription model giving you access to all the courses. Courses which are well organized have other resources like Excel files and PDF files to download and no commercials. For a custom zero homepage going into the company file, we set up in a prior presentation that being the bank feed file. Duplicating some tabs to put our reports in like we do every time. Right-click it on that tab up top so we can do so. Duplicate that is. Right-click it on the tab up top again so we can do so again. Duplicate that is. Let's go back to the tab to the middle accounting drop down. We want the balance sheet report tabbing to the right accounting drop down. This time we want the income statement report changing the date range on the income statement dropping it down. We want 2022 beginning of January to the end of the year of 2022, which is December 31st updating that report. And then on the balance sheet, we're going to change the date to the end of August because that's going to be our first bank reconciliation. So I'm going to hit the drop down. We're going to say custom date. Let's do that and dropping it down on the date August 31st. And let's update that one and then tab to the left. And now let's go into our banking information accounting drop down and bank accounts. So we've had the bank accounts that we have set up the checking account, the credit card account and the PayPal account. We talked about some reconciliation of the credit card account in a prior presentation. Now we're reconciling the checking account. So if I go into the checking account, you'll note that on the reconcile tab, we have now reconciled everything over here. In other words, we've pulled everything in that pulled in from the bank fees and went into what I call bank feed limbo here into the actual creation of our financial statement. And nothing is left over here. We have the banking information in this tab and our account transactions information in this tab. Now we're going to imagine that all of our data for the most part was constructed directly from the bank feeds. But remember that if it wasn't constructed directly from the bank feeds, then your bank reconciliation might be a little bit more difficult than if it's constructed directly from the bank feeds. And it'll depend on your industry as to whether you can just construct your financial statements from the bank feed. So in other words, if I go to a flow chart, this is my QuickBooks desktop flow chart, but we're just looking at the flow of the forms. Remember that on the revenue cycle, for example, if you're in the situation where you have gig work, then you can you can basically wait until it clears the bank to record the revenue with the use of the bank feeds. But if you have a register situation or if you have to invoice people, then you are going to deviate from just recording your books from the bank feeds because you're having a cruel component in it. And it's more likely that you might end up with some reconciling items, some deposits that you're making on your side that you're matching with the bank feeds, which could result in outstanding deposits, which are reconciling items. On the vendor side, if you're actually physically writing checks, then you're going to need to you're going to have reconciling items that will complicate your bank feeds a little bit. And if you are tracking accounts payable, then it's more likely you're going to have reconciling items as well. So keeping that in mind, let's go and actually open up our bank reconciliation report now. Zero has a great report that we can actually kind of see it constructed as we go. I'm going to tab to the right, right click on it and duplicate this tab again and then go into the accounting drop down and open up our reports. And I'm going to type in up top bank reconciliation bank rec. So that's the that's the one we want. And so now I also have my bank statement here. So this is a mock bank statement, obviously, but we're imagining that it comes from our financial institution. And note that when you look at your banking information, oftentimes people just think of their running balance as their bank statement. You know, but that's not really it's easier to use a bank statement when you're thinking about reconciling because it'll have definite time frames of the end of the month. Right. So that'll allow you to more easily have that cutoff date so that you can basically reconcile. So here we're looking at the date as of the end of August. So so that's going to be our point of reference. So I'm going to put my date range here in my reconcile report for August of 2022. I'll say it starts at the beginning and goes to the end of it 2022. And then I'm going to say the bank statement is going to be for the checking account. And then the balance we want is the ending balance. Twenty seven nineteen ninety six. So two zero seven one nine point nine six. Is that right? Two zero seven one nine ninety six. Yes. Let's update that. Okay. So this is what we have then. And we've got the balance in zero. If I look at the balance in zero, that's on my balance sheet as of the cutoff date. Eight thirty one twenty two is at ten thousand seven nineteen ninety six. And then we have no outstanding items, payments or receipts. So the calculated balance still is just the same amount and the bank balance is twenty thousand seven nineteen ninety six. The difference is ten thousand. So we're off by ten thousand. Now, why are we off by ten thousand? In this case, if we just observe it, we can say, OK, what does that what happened here? Well, over here on the bank statement, there's the ten thousand up top. That ten thousand isn't included. Why? Because this is the beginning balance that was in place before we started pulling the information into the bank feeds. So when we pull information into the bank feeds from zero, it's not just going to match us or give us that Indian balance, but instead it's going to give us the detail all the activity is being pulled in. That's important because we're not just trying to get the Indian balance of the bank account correct. We're trying to use the bank account to record all of this other stuff. And that will help us to to create both a balance sheet and an income statement. So so that means that before we started pulling information in, we had this ten thousand dollars in there from the prior accounting system. So that was either us investing the money in there or possibly we had a prior accounting system before we started putting the information into zero. So we have to account for that. Now, sometimes that might not be your only problem when you first reconcile the bank statements. Because if you're not constructing your accounts directly from the bank, like if you're writing physical checks, for example, then you're going to end up possibly with outstanding items. So you can have outstanding checks, checks that you know you entered. They're in your zero system because you wrote them, but they haven't cleared the bank yet. And that's why we end up with these outstanding items. We're going to imagine we don't have any in our practice problem here because we constructed our books for the most part directly from the bank accounts. We didn't have any checks that we wrote because we used electronic transfers. Now, even if you use electronic transfers, it's still possible that you have a full service system in some cases, right? So you're going to actually record the transaction on your side and it needs to clear the bank, which means you still could have these timing differences for the payments and deposits, which would be these reconciling items. However, if you're constructing your books directly from the information after it clears the bank, then you're completely reliant on the bank and you're not going to have any of these outstanding items. One other thing to point out, if you had outstanding items that were on the beginning balance side of things, then those are going to be items like checks, for example, that you wrote before you started adding them down here in the current period. So they would have happened before August. So in July, you wrote a check. It hadn't yet cleared, so it was included in your balance, but not on the bank statement, which means that it's going to clear in the current period. So that's another kind of issue that you might have with these beginning balances that you'll have to deal with those outstanding items from the prior period. We're imagining we don't have any this time because we're constructing our books directly from the bank feeds. So all we need to do to kind of to shore this up is deal with that $10,000 beginning balance once done. We don't have to do that going forward and the bank reconciliation should be super easy if we're just constructing our books from the bank feeds because we'll basically be able to track and tie out our balance at any given time to the balance on the bank account if we're constructing our books directly from the bank account. But you still want to check that and possibly even kind of run your bank reconciliation report periodically looking at the bank statement. I still think is a useful way to do that because that'll help you to make sure that you don't have any duplicate items. Bank feed pulled in two items somehow some way for some reason or that you just missed one you deleted one or one didn't pull in and that would throw your balance off. If you have any outstanding items like you actually write checks or you do more of a full service kind of system you're entering the data using the bank feeds to double check. You're still going to have to have some process of you want to do your bank reconciliation report like monthly so that you can see exactly what the outstanding items would be. All right so I'm going to imagine that this 10,000 was from the prior period and let's go ahead and just enter that into the system. I'll go to the first tab and I can go into accounting we can we can go into the let's just go into a receive money form actually let's just say it's a receive money form and it's going to go into our checking account so checking account did did did did yeah that's the one that's the one and then I'm just going to say it's like we can say it's from the owner or maybe it was prior period earnings. So I'm just going to say miscellaneous as the customer I'm going to put it in their prior so it's going to be 2022 will say that it's July 31st so the prior period and then I'm going to say this is the beginning balance and if it wasn't investment from us then we might put it into an equity account of owner investment or if it was from prior period earnings we might put it directly into retained earnings now note that if it was prior period earnings that normally when you start like a new accounting system what you want to do is is have a full years worth of data in one accounting system. So you don't really want to usually say I'm going to start a new accounting system in the middle of the year and just pull in half the year and one accounting system in half the years and another accounting system because it's likely you're going to need to run reports for the entire year. So so that would mean that if you're starting in like July as we're doing then you probably want to pull in the bank feed data for the full year so that you have 12 months and you have a redundancy for the first half of the year in your prior accounting system and the current accounting system so that so that you can have that overlap that might help you to kind of make sure that everything is running smoothly and then you can move on to the current accounting system. So that would mean like so if it was so you wouldn't really want to record the beginning balance to income is the point it would be some kind of equity account. So I'll put it into retained earnings here I'm going to say it's going to go into retained earnings for the amount of the amount of 10,000 so say one 10,000. So this will be an increase to the checking account the other side going to the equity section of retained earnings. Let's save it and check it out. So it's saved. Let's go to the balance sheet and check it out. I'll update the balance sheet and so the checking account has as going up and then if I go into the retained earnings. Now we've got the retained earnings going up so if I go into the retained earnings let's take a look at it. The equity account that the income statement rules into there's the 10,000 the other side back on over is in the checking account. So let's go ahead and check out the checking so we can go into the checking account and see what's in there what's happening in the check. And so there so there it is in here. Okay. And the point is that nothing happened to the income statement. Nothing's going on with the income statement. All right. And so if I and then if I look at my reconciliation report what happens if I if I haven't checked it off as having been reconciled. So they put it up here in an outstanding receipt because because now I have entered it on my side. We haven't reconciled it to the bank at this point in time. So now I'm going to go back and reconcile it and it'll take it out of out of this part right here and it should put us in balance. So if I go to the first tab and and say okay let's go into my accounting the bank accounts. Let's go into that that bank account here and what happened on this end will on the accounting transaction side of things. I've got 10,000 in it but it's unreconciled because I haven't checked it off to the bank feeds. All of the other stuff or most of it we actually constructed through the bank feeds it clear the bank feeds then we put it on the books. This one we put on the books but haven't matched it to the bank account. If I go to the reconcile tab over here there's still nothing to reconcile. Why? Because zero is saying hey look we don't have anything from the date range that you gave us that's pulling in from the bank feeds because you entered the range a range and this is the beginning balance before that range. So it pulled in all this stuff all the detail it didn't pull in the 10,000 before that range. So we're going to have to say okay well then I just want you to add it on on the bank side of things not adding it to the books it's already been added to the books. So I can go over here one way you could do that is I can go into the account here I can go into this miscellaneous item and I'm going to hit the options drop down and say I want you to mark this one off as reconciled that will include it to the bank side of things as something that has been checked off. It says here it is recommended that you only mark as reconciled in cases where the original bank transaction data cannot be imported from the bank. That's kind of the case here because we started importing from the bank you know in the middle and there's still some balances before that point in time so that's what's happening. Accounting drop down and let's check it out again let's go back into the checking account. So so now that thing is now checked off as having been reconciled. So notice that anything that is unreconciled over here is what's going to be used to construct our financial statements. So just a quick recap on how this works. You've got the account transactions. You've got the statement transactions that pulled in from the bank. You've got the reconcile which is matching those two out the bank transactions matching trying to match them out to the account transactions. If something is on the bank statement side but not on our books then generally we're going to have to add them to our books. Even because even if we're doing a full service accounting system because unless the bank is wrong is the bank wrong. Not usually it's usually something that's been added to the bank that we're not going to have what you know we're not going to tell them that you messed up. Usually we're going to have to add it to our side of the books. If it's on our books over here however and it's not on the banks it's not necessarily wrong. It could be but it's not necessarily wrong on our side because it's possible that we're doing a full service accounting system where we are entering checks and deposits before they clear the bank as we actually make those transactions and then when we bank reconcile we're matching them to the bank. So in a full service accounting system we would be doing this first and then matching to the bank and then when we reconcile all the stuff on the left hand side that we see from the bank would basically be matching up to the green side. It would be making the green items that would tie out to the stuff that we already put into the system for the most part and once we completely tie everything out from the bank on our side we might still in a full service accounting system have some items that are not reconciled. We entered them on our side but they haven't cleared the bank and they might not be wrong because they might be outstanding checks and outstanding deposits. Things that we know happened but the bank doesn't know happened yet because they haven't cleared the bank. So that is definitely going to happen with checks if you write physical checks and it might happen if you're doing electronic transfers even as long as you're doing a full service accounting system. You're entering the transactions not from the bank feeds but when you do the transactions and then they're going to clear the bank like three days later at least even with electronic transfers that will result in these timing differences. So anything that says unreconciled here is going to show up on our report on this side. I'm going to update this in these two items right. We don't have any because we built our books directly from the bank feeds but that's what this report is doing. So it's going to it's going to try to reconcile the bank balance and the book balance which now we're in balance and we don't have any reconciling items in here. If we had reconciling items in here it would still be important to completely reconcile out to the penny because that gives us verification and it doesn't only give us verification on the bank balance being correct. That's great but it also if I can reconcile to the penny the difference between what is on our books and what is on the bank statement even if there's a difference because of outstanding checks and deposits. If I can reconcile that to the penny then I'm not only confident about the ending balance as of this point in time but I'm also confident about all the transactions that I have put in place and that's really what we're looking for here because all of these other transactions are what is being used to create the entire income statement for example. And so if I can verify not only the ending balance but all these transactions using the double entry accounting system I've got this huge internal control double check on the whole accounting system. So just I just want to point that out because the bank reconciliation is the number two biggest internal control. So the first big internal control you have is the double entry accounting system itself assets equal liabilities plus equity that's that's forced on you when you use accounting software. If you don't use accounting software and you're just kind of like making your income statement that's you could do that. I mean but but you're losing a huge huge double check against making errors. If you put it into accounting software even if you don't need the balance sheet for tax preparation for example if that's what you're using it for you're still what you're way more confident. If someone gives me software versus a handwritten ledger that's not using the double entry accounting system then I have way more confidence in the software. But if they're not reconciled then confidence goes way down the next big thing is to reconcile. So if so if you reconcile and you're using accounting software then your assurance level on your books being good doesn't mean every error is going to be caught. But the assurance level goes way up that you that you have some legitimate numbers here that actually reflects what's going on possibly you know. So so that's what you want to do it's really important to do the bank rec and make sure this ties out. So once you get this first this first bank reconciliation tied out which which could involve this beginning balance issue then going forward the bank the bank reconciliation will be really easy and and you could basically you could basically if you're constructing your books from the bank feeds. You'll basically be on balance all the time and you just want to double check to make sure that you haven't double entered anything or haven't or missed something that hasn't been entered.