 Zero Accounting Software 2023 Bank Reconciliation Opening Balance Problem. Get ready to be an Accounting Hero with Zero 2023. First, a word 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 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. Ugg Slippers. I usually walk around my home in just my socks, but I wanted a high quality pair of slippers that didn't have a heel on them so I can slip them on easily, give me a little bit more warmth than just my socks provide, and which has a sole on them so I can deal with messes in the home, such as spilled liquid or broken glass, without getting my socks wet or my feet cut up, and the Ugg Slippers do a great job with that. I like the quality of the slippers. They feel like they're going to last a long time. They will probably outlast me, so I recommend the Ugg Slippers. 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. Here we are in our Custom Zero homepage going into the company file we set up in a prior presentation. That being, get great guitars, duplicating some tabs to put reports in like we do every time. Right-click in the tab up top so we can duplicate it. Right-click in the duplicated tab so we can duplicate it again. Back to the tab, to the middle, accounting drop down. We want to open up the balance sheet, slightly modified balance sheet. If you don't have a modified balance sheet, just open up the normal balance sheet. Going to the right, accounting drop down. I'm going to open a comparative income statement. If you don't have that, you can open just the normal income statement up. I'm going to open up another tab so we can open the bank reconciliation report as we reconcile, which is really neat that we're able to do. Right-clicking up top to duplicate again. We're going to go to the accounting drop down reports. This time, let's open or tab in here or search for, I should say, the bank reconciliation. As that's thinking, let's tab to the balance sheet and let's change the date range. Let's bring it just to January. We just want to look at January here. Customizing this date range. Dropping down the dates. Dropping it down. Dropping down the base beat for my music song. I don't know where that came from. Anyway, January. This is the end of the checking account. That's where we're standing. We're reconciling as of the end of January. If I look at a bank reconciliation report, let's change the date range for that one. Drop down and we're going to say that this is going to be January 31st. I know January 1st through the timing thing through January 31st. Okay, it's going to be for the checking account and the balance on the bank statement per bank statement, 6124185, 6124185 and update it. So thus far, what we have done is we've basically reconciled everything and tied everything out from our bank statement to the books except for these two items. And we had this beginning balance type of issue. That's what we're going to deal with now. So let's just take a look at the problem in a bit more detail. If I go to the first tab over here and we go into our reconciliation, we could find in the accounting drop down bank accounts. And let's go into the drop down and look at the accounts because we were reconciling over here and we've got our tabs. If I go to the reconcile tab, I have then these two amounts that were on the bank statement, but not on our books, which usually means that we have to add them to our books. But in this case, these were two checks that were written in the past before we started our first time frame going forward. And therefore they were actually written in the prior accounting system, even though they weren't cleared until this time. And then we also have this issue where we have that beginning balance that we put on the books here of the 30,000 where we put the beginning balance on the books at the 25,000. So if I go back on over and I go and I go to the bank statement, not the bank account transactions, then we could see this 25,000. That's going to be the other thing that we need to put in place and it doesn't exactly match the 30,000. Now you can see these two things are related. How are they related? Because these two checks outflows cleared this period and they were written, however, before January. They were written in like December of last year. So we actually wrote them last year. So they were included in our bank balance, bringing the bank balance down by 5,000 to 25,000. But the bank didn't know about them. That's why the bank balance is at 30,000. Those are the outstanding items that then cleared this time. Now remember that note that it's not always the case that if something was outstanding last month that it will clear in the following month. It should, but it's quite possible that if you're pulling over an accounting system that they had outstanding items that they never like cleaned up. So they're just always on the books and they're never going to clear because they're probably not legitimate items. And in that case, you won't have this nice ability to see what's going on here. Like that 5,000 is off by the 5,000 is off over here. Those two things are somehow related because they will never clear. But it's the same kind of issue. So you can fix it in this basically in this way. So what we're going to do is I want to put on the books. I want to put these two checks on the books, but I want to do so as of the prior period so that the balance will basically roll into the retained earnings account. It's the general idea. And when I put these two checks on the books, I'll then be able to check them off. And then this beginning balance, I want to put that on the books at the 30,000. So I'm going to change that 25,000 to 30,000 so it'll basically match what's on our bank statement here. Those two transactions will net out against each other. All right, let's take a look at that over here again. Just so we can see that on the bank reconciliation, which we can kind of see as we go. We've got the zero balance. This is the balance that's coming from the balance sheet as of January 31. We've got the plus outstanding payments. So these are the outstanding payments that have not yet cleared at this point in time. If I scroll down, we've got the outstanding payments. These are these checks that we put into the system, but they're not on the bank statement because most of them they're going to be clearing. Hopefully they're all going to clear in the following month. That's what a standard reconciliation report does, less the outstanding receipts on the outstanding receipts side of things. We have the one outstanding receipt that we wrote that has not yet cleared, which is this one, but we also have this beginning balance issue. And that's that 25,000 that we're going to have to deal with as well. And then it's got the reconciling item, the 5,000. Those are the two things that we haven't checked off yet on the bank reconciliation, giving us our bank balance, which doesn't match our balance by the 30,000, which is basically this 30,000 beginning balance up here. Okay, so let's go back on over. I'm going to fix this by going to, we can add these two into the system so we could look at the prior bank reconciliation and add these two into the system. So that's one step to the process and then we'll deal with that $25,000 amount. So let's imagine that we looked up the check that we wrote in the prior accounting system in like December and we're going to mirror it here. Now, I'm not going to write the check to the actual, like if I bought inventory, I don't want to write the check for the purchase of inventory, right? Or if it was to an expense, I could write it to an expense account because it'll roll into, in essence, retained earnings. But in essence, we wanted to go to net out these two transactions to net out to retained earnings because we've already put our beginning balances on the books. So I want to make sure that I enter this check as of the prior period before January 2023. So I'm going to enter it as of when the check was written or as of just December 31st to record it at the end of the period for an adjusting entry. And then I just want to make sure that it's not going to impact the income statement for the current period. Let's say, let's imagine we bought something from Epiphone, which would normally be inventory. But we're going to be putting this to an equity account because we're going to net this thing out to equity account. So I'm going to say, and you could use a clearing account if you wanted to use a clearing account. The equity accounts, where are they? Here it is. I'm going to use this beginning equity account because it should net out in that beginning equity account. So once we do these two sides of the transaction. Alright, so then why these are checks from prior period cleared current period or something like that. And then I could add the details here. And I'm going to say it's a money out form. This had to have happened sometime in December of the prior period. So I'm going to bring it back, bring it on back to 2000. So they have a different dropdown here. We want December, December. I think I got it 2022 December. Okay, and 2022 December. And let's just say the check was on the 16th or something like that. So it's in the prior period, but it didn't clear until this period. So that's why we had to pull it into our accounting system for $1000. Okay, the other side is not going to inventory because I already put the inventory on the books when we put our beginning balances on the books. So that's why I'm going to just net it out to the clearing account just so we can get our first bank reconciliation reconciled. So let's save it. And then it looks good. I'm going to say, okay, reconcile. All right, let's do the other one. Same thing here. Let's imagine this one was going to the telephone company or whatever, which was Verizon. It's a large amount to be going to Verizon, but you get the idea. So we're going to say this is going to be going to opening balance equity to what did I call it? Where's that equity account? Donde esta? There it is. And then again, prior period check, prior period check. And then I'm going to add the details. And so it's going to the equity account. It happened last year. Let's see if I can get this drop down right 2022 December. It was a long December. Okay. And so this is going to be a transaction that's going to go there, but it's going to the equity account. Okay, so I'm going to say save the transaction and then I can reconcile it. You better recognize and reconcile. So now everything that has been reconciled on this side of things. We're not done yet though, because let's go to the balance sheet and say update the balance sheet. K-PASA, what happened here? If I go into the checking account, then I wrote those two amounts, but not for 2023. They happened in the prior period. So let's bring this on back. Bring it on back to 2022. And we can see K-PASA. So there's the 4,000. There's the 1,000. The other side going to the beginning balance equity. So I'm going to go back up. I'm going to go back to the balance sheet and the other side went to the equity account. So now we've got this beginning balance equity, which has something in it again, which we don't want to have anything in there, right? So now I've kind of adjusted my beginning balances. So like if I ran this report as of the end of 2022, it would have that I adjusted my cash account here and I adjusted my beginning balances. So what I'd like to do now is the other side of the adjustment is the 25,000, right? The 25,000 and the $30,000 difference. So now let me just show you this for a second. If I bring this back, we entered our beginning balances as of the end of 2022, the end of 2022. And I updated that. And the problem was in the checking account, I had to put the checking account balance in place at 25,000 because that's what was on the trial balance in order to be in balance. And then everything else washed out to the equity account and then we rolled everything into the retained earnings account so we didn't have this beginning balance clearing account anymore. So now you can see what happened is I made an adjustment. So now I have 20,000 in here instead of the 25,000 and I have this 5,000 in this clearing account. So now I'm just going to adjust that. I'm going to fix that by basically bringing that beginning balance amount that we put in place to 30,000. We're going to put the 30,000 beginning balance in and just net it out to this 5,000 here. So we'll be back to where we were before but now able to reconcile. So to do that, let's drill down on this 20,000 right here. I'm going to drill down on it. I'm going to find that $25,000 amount I put into the system. There it is, the 25,000. The other side went to beginning balance. So I'm going to go into that now and say I need to adjust that to be 30,000 in essence. So I'm going to say let's options and edit the transaction. Now you could make another transaction for the $5,000 difference but I'm going to do it this way. I'm going to say that we're going to change this to 30,000. The other side was going to the beginning balance. So that's a difference of 5,000. So now we're going to adjust it back to where we were before having the checking account netting out to the 25,000 it was at and then the opening balance equity should go back down to zero. Let's update it and check it out and see if that is indeed what happens. I'm going to go back to the balance sheet accounting drop down and go into my balance sheet by going to this one. And so then if I run the balance sheet, I was running just like Jenny told me to. I'm going to bring this back to 2022. So now we have the beginning balance back to the 25,000 and we have that opening balance equity is now gone. So we're back to where we started from on those beginning balances. But now we have the added detail of those two checks in the system so that we can reconcile them because they cleared in 2023. All right, let's hit the drop down again and customize the date range back to 2023, January of 2023 and update it. All right, so now let's take a look at our bank reconciliation report on this side and just notify update this report. I can see that that even though I have everything checked off, I'm still off by that 30,000. So now I've got the beginning balance, which has been adjusted to the 8864525. That matches what's over here, 8864525. And then I've got these outstanding payments. Those make sense because these are outstanding. They were written in 2023 and they haven't cleared the bank yet, so that seems normal. And then I've got the less outstanding receipts. And then if I go into these outstanding receipts, this one looks normal, but that 30,000, that's the problem. That's the problem. That one has cleared. How did it clear? Well, it cleared because when I entered the transactions into the system using like the bank feeds, I only could enter the data of the transactions. So I cleared this one now. I cleared this one now. And the deposits all add up to this and the subtractions add up to that. But I still don't have that beginning balance on the books that didn't clear. Why? Because when I entered the data into the system, I only entered the activity, not the beginning balance, which happened before that point in time. So that means there's nothing on the bank statement side of things to match out to that 30,000. So if I go to this side, in other words, again, if I look at the reconcile, it's like I'm done. There's nothing here to reconcile. What's going on here? Because that didn't pull in from the bank feeds because I'm only showing the activity. If I look at the bank statement side of things, these are the transactions. Everything's reconciled on the transactions because we checked everything off from the bank side to the books. It's just that the beginning balance wasn't on the bank side because that happened before the time period that we're working on. If I go to the account transactions, then now I can see this beginning balance. That's the problem. So how do we fix this? I could upload the bank feed like we did before with an Excel file to show the bank feed with the beginning balance transaction, or I think this is where Xero has designed the proper use of forcing the reconciliation button. In other words, I can force this to say reconciled by going to the owner or I go into it and then I can hit the dropdown and say I want you to mark as reconciled. So we're going to force it to do it without matching it in this case because of that. So it is recommended that you only mark as reconciled in cases where the original bank transaction data cannot be imported. That's the case here. Why? Because we don't want to import transactions before the cutoff date. Therefore, we have to have that beginning balance as of that time. So I'm going to say that's cool. Thanks for the warning Xero, but we know what we're doing, man. I know what I'm doing, Wyatt. Okay, so we're going to hit the dropdown and go back to the banking and then dropdown and accounting. So now that one has been marked as reconciled. And if I go to my bank statements, it will actually have added that one. I believe in here, right? There's the 30,000 that it basically added and marked it off at reconciled. It didn't make anything new. We didn't record anything new. We just told it, hey, that's something that is on the bank statement. Mark it off as having been cleared. Don't show it in other words on the reconciliation as something that is an unclear or outstanding amount. So if I go back on over and I look at the bank rec, then again, we should be good to go. So there it is. So here's your standard kind of bank rec. You've got that beginning balance. You've got the additions, the subtractions, and then the statement balance. So we might take a look at the bank rec a little bit more detail in future presentations, but that's that beginning balance issue. Now that probably for many people, complicated like confuses people quite a lot. But once you get past that beginning balance issue, you're not going to see that anymore because going forward, the ending balance here. So see now I checked this off. So now everything has been cleared off. So going forward, the ending balance here will always be the beginning balance in the next bank rec. So everything should move smoothly once you get the first bank reconciliation in place. So that's when you really kind of feel confident in your accounting system that things are rolling. You've got your beginning balance. You've got at least one month of data input and you've completed a successful bank reconciliation. And then you are usually good to go from that point. And what usually happens for a lot of people is they kind of fudge the first bank reconciliation. They make it work somehow. And then once they get the balance in place, it'll kind of work, then you'll be okay going forward. But if you understand what's going on, then that makes you feel a little bit more comfortable that everything is happening the way it should be happening. All right, so we did make a change here. We didn't really make any changes to the ending balances here. So we don't really need to see a trial balance. I'm not sure we looked at the trial balance last time, though, because we did add a couple things. So let's go last time we did. Let's go to a trial balance. Let's just take a look and check our numbers, where we stand at this point in time, typing in the trustee trial balance to do so trustee trial balance. And we're going to date range this something's I'm choking on something. 2023, I'm okay. Don't worry. Don't worry. I'm fine. Anyways, this is where we stand at this point in time. If your numbers tie out, that's great. If not, try changing the date range. It's often a date range issue. And then you can expand, then you can drill down on the numbers and making the changes you need.