 In this presentation, we will take a look at the objectives of the bank reconciliation process. In other words, we've entered two months of data and now we're going to do the bank reconciliation for those two months. We're going to do them one month at a time, taking a look at the bank reconciliation back by back for those two month time periods. That's going to be useful because the first bank reconciliation has some challenges unique to it being the first bank reconciliation. The second bank reconciliation should be easier, but we'll get a better grasp and understanding of outstanding items, outstanding checks and outstanding deposits with the second bank reconciliation. Let's get started with Sage 50, Cloud Accounting. Here we are in our Get Great Guitars file. We're going to start off by opening up the balance sheet by going to the reports up top, reports and forms, and then going down to the financial statements. In the financial statements, we'll open up that first one, that favorite one, that being the balance sheet. We're going to be putting this for the month of February. Actually, let's bring this back to the month of January. That's the first bank wreck we're going to do. Let's go to the month of January, January 1st through the 31st. Then we're going to say, okay, and there's going to be our information. We're considering the bank reconciliation process right now. From the basic standpoint, what is the bank reconciliation going to do? It's going to be tying out as of a specific point in time. In this case, January 31st, 2020, the bank statement to the bank balance on the books. The bank balance on the books is 95 381 42. If we go to the bank statement, then, and this is going to be our mock bank statement. As of the Indian date here of the bank statement, January 31st, it's 109 917. There's a difference between those two. They're not the same. Now you might think, well, that must be because there's an error. There must be some kind of problem that we do the bank reconciliation to fix. That may be the case, and we will be adjusting, making some adjustments during the bank reconciliation process. But it may not be the case. And once we're done, we're still not going to reconcile why because there's going to be outstanding items, outstanding checks, outstanding deposits. Now just be aware that now that there's like kind of bank feeds that can go on, it's possible for someone to do their bank keeping process or their bookkeeping process by getting bank feeds directly from the bank and constructing their books from the bank feeds from the bank. If you were to do that, I just know you'd be completely dependent on the bank in that system. I'm not saying that's good or bad. I'm just saying under that system, you may not have the outstanding checks or deposits if you were to use that system because you built your whole books on the bank statement. And that's not really what typically the full service bookkeeping process does. What the full bookkeeping process typically does is we enter the transactions on our side for the bookkeeping. The bank then enters the transactions that relate to our bank account on their side. And then we reconcile the two to see if they match up. And if that is the case, if we have two sets of books, if we're not making one set of books based on the bank, but have two basically sets of books that have been done separately and we do the reconciliation process, there will almost always be some type of difference because of timing differences. Those being outstanding checks, outstanding deposits, checks that we have written which have not yet cleared the bank. And those are what we're looking for. If we can do that reconciliation, if we know exactly what the reconciliation is, that gives us that second verification. And that's really a huge thing because one, the bank account is obviously a big deal for our cash account in general. But you might say, well, what if I don't even have that much cash? It's not, maybe it's not a big deal, a bank reconciliation process. But it's still a huge deal because cash is kind of like the oil in all of the accounting systems that we have, right? It's going in and out of every accounting system that we have. So when we reconcile the cash accounts, we're also reconciling to some degree. We're giving some verification of every process that's happening within the system because every process has cash involved in it at some place at some time. So this is basically the other than the double entry accounting system itself. The bank reconciliation is probably the second biggest kind of internal control you can have against like safeguarding that you don't have problems in your bookkeeping, such as things that are entered twice or things that have not been entered into the system. So it's a huge internal control. The double entry accounting system itself is going to be taken care of to some degree just simply by using software such as Sage 50, which will basically not allow you to be out of balance. That's going to be one of the biggest internal control we have. The second biggest internal control for most small businesses included, every type of business should be the bank reconciliation process. And just to get an idea of that, if we looked at any one of these flows up top, the customer and sales cycle, obviously no matter how you look at it, cash is going to be involved in it, of course. We're going to have the sales that goes into accounts receivable and then it goes into revenue. And then of course we're going to receive the money and then deposit it at some point in time. So when you think about the customer cycle, then of course cash is involved in it. Now it's not because you've reconciled cash doesn't mean that there are no errors in the books because there could still be an error. There's still a transaction over here that has nothing to do with cash. So the cash transactions over here, but you could see it's within the process. So therefore it's still a huge check on the internal controls of basically the customer and sales cycle. And if we go to the vendor cycle, then on the other side of things, the full cycle would be something like a bill happening and then we pay the bill. We pay the bill of course with cash. So once again, you could have a transaction and transactions involved here that don't involve cash. And if reconciling cash doesn't mean that everything is perfect necessarily, however, it's a huge internal control given the fact that it's going to be part one major part of the flow within the vendor cycle. And you could think of the same for the inventory process. Of course, at some point in time, it's another kind of purchasing cycle, payroll cycle, same kind of activity. Of course, we're going to be paying the employees with cash. So checking, being able to verify the cash accounts to some degree, it's going to be huge in that process as well. If you think about any other account on the balance sheet or the income statement, there's no other account that does that, right? If I look at any other account, accounts receivable, for example, there's only two things that really happen there and invoice increases it and then you make a payment on it. So there could be a lot of detail, a lot of things to do with accounts receivable, like tracking it and see who owes you money and the terms and this and that. However, it's not like cash in that it's not going to be running through every other component in the business. It has specifically to do with the accounts receivable and sales cycle, same with inventory. Inventory is purchased and inventory is sold. You know, that's basically it. It's not running through every component of the business typically. So with cash, it is. So it's going to be a huge internal control if we can get the verification within cash and the bank reconciliation is a big part of that. So how do we do it then? Well, note that the end goal and this is another piece that kind of gets confused because a lot of people get confused in the reconciliation process as opposed to what a bank reconciliation is. So the end result, what we're looking for the end result is us to be able to reconcile this ending balance to the ending balance on the bank statement at a certain point in time. So we're going to be starting with either the bank balance or the book balance. We're going to be showing the items that are reconciling, outstanding checks and deposits to get to the other balance. That's going to be the reconciliation process. I mean, that's going to be the actual reconciliation, the form. If you're going to talk to an auditor, that's what they want. That's they want that form. Now, the process of bank reconciliation will be that we're going to compare our books to the banks. So what we're going to do is be able to basically take and tie off everything related to cash on our books to the bank. That's the process of reconciling. That's not a bank reconciliation, right? Because what's going to happen is the ones that we don't check off, those are the reconciling items. Those are the ones that we can't find on each side. The ones that are in our books that aren't on the bank statement. Those are the ones that are going to be on the actual bank reconciliation that will be reconciling from the book to the bank balance. The ones that we check off, we check off in the process of reconciling to find the ones that we can't check off that are actually going to be on the bank reconciliation, the actual report that an auditor would want or the report that actually shows and gives you the verification that your cash is right. So how are we going to do this then? Well, we're going to have the bank statement here. We're going to compare that to our books. And the basic process will be this. We'll actually go through and just tick and tie this whole thing out. Now, usually the general rule is this. If it's on the bank statement and it's not on our books, then we probably have to add it to our books, right? Unless the bank made an error, which is possible, it does happen. The bank makes an error, but usually what we're trying to check is that we didn't make an error that we included everything. So in other words, if it's on the bank and it's not on our books, then we have to determine is the bank right to have it there? And if it is, usually it is, then we're going to have to include it in our books. On the other hand, if it's on our books and it's not on the bank statement, then it might not necessarily be a problem because it might be an outstanding item, something that we know about, such as a check that we wrote, which has not yet cleared the bank. And that's what we're looking for. Those are the things we're looking for. So that's what we want to find. Therefore, we're always going to be checking. It's going to be when you start off with the bank reconciliation, you always want to go from the bank statement to the books because it should be on, if it's on the bank statement, it should be on the books. So if you always go that way, it's going to be easier to find things. If you go from the book to the bank statement, then you're going to be looking for things that may not be on the bank statement and that's going to make things a little bit more confusing. So when you first start off, just always go from the bank statement to the books. And that's going to be our process. We'll take in time, everything out, and then whatever we cannot find on the books that are on the bank statement, the system will use those items, which will be the outstanding items to create a bank reconciliation report, which is the actual report that basically an auditor would want. Now, note that if you take a look at the first bank reconciliation, we have this beginning balance. And we talked about the fact that it might be a problem to have that kind of beginning balance because when we first started the bookkeeping, if this is the first time we reconciled and we just put 25,000 on the books, there might have been outstanding items from the last bank reconciliation that aren't included in that 25,000. You're going to have to figure out how we're going to check those off and deal with that on the first bank reconciliation. Also, if we didn't include this in the beginning balance, it might not show on the beginning balance. And therefore, we're going to have to find some system to reconcile that first bank reconciliation. And we'll talk about that as we do the first bank reconciliation. And then in the second bank reconciliation, it should be all easy to go. The beginning balance will roll forward. If we have the correct beginning balance and we know what, and everything on the bank statement has to be on the books somewhere, then we're just going to check them off and we'll be able to reconcile it has to work. It's going to be something that just has to work. So just realize that when you're reconciling, it's not like, well, there's no way it cannot work if you take everything that's on the bank statement. And if it's not included on your books, then you fix the books, right? So it's got to be something that's going to work. So that's going to be the general process that we will have. And we'll start with the first month and take a look at the beginning balance and the deposits for it next time. That's it for now. Let's get out of here.