 QuickBooks Desktop 2023. Bank Reconciliation Mythbusting. Let's do it within to its QuickBooks Desktop 2023. Support Accounting Instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel Practice Problems, PDF files, and more like QuickBooks Backup Files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Here we are in QuickBooks Desktop. Get great guitars, practice, file. We started up in a prior presentation. Going through the setup process we do every time. Maximize on the home page to the gray area. Going to the view drop down. Noting we've got the hide icon bar, open windows list checked off, open windows open on the left. Reports, drop down, company and financial. Profit and loss standard. Change the range 01, 01, 2, 3 to 12, 31, 2, 3. Customize the report. Fonts and numbers changing to 14. Okay, yes and okay. Reports drop down again. Company and financial again. This time the balance sheet. We're going to customize the report. Change the range 01, 01, 2, 3, 12, 31, 2, 3. And then fonts and numbers are changed to 14. Okay, yes and okay. That's the setup process we've been going through every time. We're now looking at the bank reconciliation process addressing a few myths related to it. One myth is that you don't need bank reconciliation or to do bank reconciliation if you have bank feeds turned on. So we'll address that in some detail. Typically you're still going to want to do bank reconciliation in essence, no matter what. Another myth is basically the idea that you don't need to really do bank reconciliation because all you're doing is verifying the checking account. And you can basically look at the checking account by going to your online banking and kind of double check it in that way. That's not exactly true as well because the bank reconciliation process does not just verify the Indian balance in our checking account. It's a verification of much more. It's a huge internal control second only to the double entry accounting system itself. Another myth is that the process of the bank reconciliation is confused oftentimes with being the bank reconciliation. So in other words, when we do bank reconciliation, we'll go through a process of reconciling, which can be found. You can get there by going to the banking and we can go to the reconcile. And this will take us through the process of reconciling, which is really important. But the process of reconciling is not the same thing as a bank reconciliation, which will be a report closing this out. After we have done the reconciling process, which will be tying out the differences between what's in our books in the checking accounts and possibly we could do the same thing for the credit card accounts and what's on the bank statement as of the same point in time. You could find the reports, for example, in the drop down banking, and then you can go into the previous reconciliation. Note that the reconciliation reports are different from the other reports because they're not reports that are being created as we enter the information into the system, but rather they're a report that's created for a double check and internal control as we compare our books to the bank statement. So, for example, let's change the date up top and I'm going to customize it in here and just through the month of January 01.01.23 to 01.31.23. And if we say, okay, there's what's in our books as of the end of January. If I look at a bank statement, we can then see the bank statement here. This is just a mock bank statement we made up. But at the end of the same balance, we're at the 61-241-85 versus here, we've got the 88-810-25. So there's a difference and we're as of the same date using the checking account between our books and the bank. So the idea then would be, well, there's something wrong with our books, right? We need to fix something. But if we're doing a full service accounting system, that's not necessarily the case because we might have entered transactions in our system that have not yet cleared the bank because oftentimes it takes time for them to clear the bank. That's the outstanding checks and the outstanding deposits. Now, that kind of leads us into our first kind of myth, which is that if you have the bank feeds on, then you don't need to do a bank reconciliation. Now, the reason that let's if we go back to the homepage just to address that, we'll have a whole another course or section on bank feeds themselves. We'll talk about this more. But just note when you're looking at the bank feeds, you got to think, how are the bank feeds going to fit into my accounting system? And we can think about it by cycle, vendor cycle, customer cycle, employee cycle. So taking the customer cycle, for example, we could be on a basis where we have an accrual basis, we might be on a cash basis, and we might have a step further or easier step from a cash basis to one where we're reliant on the bank. So for example, if we had a gig work situation, that would be a very easy situation for us to rely on the bank, possibly if we're just getting paid like from YouTube or something, we wait till something clears the bank, record it with bank feeds after it has cleared the bank using in essence, just a deposit form that on the revenue cycle would be the easiest kind of format for us to just rely on the bank feeds to build our our books. That's not a full service accounting system, because usually the full service accounting system results in us entering the data first, and then verifying double checking from the bank. If you have the type of company that can do that, rely on the banks to create the books, then the bank, you still probably want to do a bank reconciliation, but the bank reconciliation will be much easier, because the balance that we have should tie out in that case, to what's on the bank, because we would have built our entire books from the banks, the bank data, as opposed to us building our books, and the bank then doing their thing and us verifying the transactions with the bank. You have less internal control. It's not as full service of an accounting system, but works quite well. If you have a type of industry that you can do that in, if you had a cash based system, which was full service cash based system on the revenue side, you would be entering a sales receipt, and then making the deposit. So then if you have bank feeds turned on, you got to think, okay, how's that going to work? Because I'm going to have to, I'm going to probably want to enter the sales receipts if I was at a register, and then get all my cash together and tie out my cash to what the sales receipt report was, and then make my own deposit into the bank here. So I would probably want to use my bank feeds more as a double check of verification, not as something recording the transaction, but verifying. In that case, the bank feed would be helping me to kind of do my bank reconciliation. It would help me tie out what I put into what's on the bank instead of creating my financial statements from the bank. If I have an accrual system, then I'm going to invoice, which doesn't have cash involved at all. And then I've got to receive the payment and make the deposit. Once again, because it's more complex, I'm probably going to want to go through this whole system, and then use the bank feeds to verify the deposit. So I still need to do the bank reconciliation process in that case. So we'll get into that a lot more when we get into, when we get into the bank feeds area, we'll discuss how the bank feeds can fit into each one of those kind of categories. But you're still going to want to do the bank feed. And even if you're building the books simply from the bank's data, you still want to do the bank feeds to double check that you haven't duplicated anything, or you haven't missed any kind of transaction. Now, the other thing is that if I go back to the balance sheet, oftentimes people say, Well, look, if my cash balance is is right, or at least close to correct, then I'm pretty content because I'm just checking the cash account. That's not really what you're doing with the bank feeds here, you're really doing an internal control on the whole accounting system. And the reason that's the case is because if you go to the homepage here, you can see that cash is the lifeblood of the company, meaning every cycle, if we think about each cycle has cash involved in it, the vendor cycle, expensive cycle, cash is going to go out at some point within the cycle in the customer cycle, hopefully cash is going to go up at some point in the cycle, the employee cycle cash is going to go out at some point in the cycle. And you could see that if we go to the balance sheet, and I look at the detail in the balance sheet, you could see that we have a wide variety of different types of forms that are that are in the checking account that are impacting various other accounts, whereas that's not the case with other accounts. If I go to accounts receivable, for example, invoices and payments, that's all you see in it. So if I go back to this checking account, notice that because it's a double entry accounting system, if I can verify not just the ending balance in cash, but the transactions that have taken place, then I'm verifying not only the cash balance, but all of the other sides of the transactions at least to some degree as well. So for that reason, it is a huge internal control, verifying not just one account, but huge cycles of accounts. It's an internal control basically only second to like the double entry accounting system itself. The double entry accounting system being the fact that you're in balance, meaning your assets equal your liabilities plus your equity. That has to happen if you're using QuickBooks, because QuickBooks will in essence force you to work in a double entry accounting system. The second big balance you have is the bank rec. So just from me as an accountant doing taxes or doing financial statements, if someone came to me with their data and asked me how reliable I think their data is, if they just give me a handwritten balance sheet and income statement, I don't have a lot of faith about that. It could be completely correct. But I mean, there's no double entry accounting system that I can see that built it, right? They just kind of put it together. Whereas if you use QuickBooks, even if you don't have a bank rec, I have a lot more confidence, because at least it's forcing the transactions to be in a double entry accounting system. However, I don't have a whole lot of confidence that all transactions have been put in place, or that they've been completely put correctly. But then if you add on top of that bank reconciliations, then my confidence level goes way up. And you know, it's not may not be perfect, but I have a lot more confidence because now everything that cleared the bank, I know is at least in place because it's been tied out to the bank reconciliations. And so it might not be going to the right place. You could have timing differences or something like that. But the confidence level goes goes way up. So whether your small business, big business, cashed basis, non cashed basis, whether you're depending on the bank feeds or not, you still want to generally do. Everybody should do basically the bank reconciliation process is the argument here. Now when we do the bank reconciliation, all we're going to do is basically go through the bank reconciliation process and the banking and reconcile. And that will take us to in essence the detail, you know, from our transactions that are hitting the checking account. And then we're going to take and tie them out to what has cleared the bank. Now, even though we're entering the data in our system separate from the bank in a full service bookkeeping system, that it should match what is clearing the bank, right? So the general idea would be then if something's on the bank statement, and it's not on our books, then it's most likely the bank statements correct. And we're going to have to say, Okay, what did I spend money on that I didn't record? And I'm going to have to fix my books. If it's on my books, but it's not on the bank statement, then then it might be a double entry or something on our side. But it also might be something that simply hasn't cleared. And the things that haven't cleared outstanding checks and deposits, if we're doing a full service bookkeeping system are what we expect to be the difference, which is a valid difference between the checking account on our books and what is on the bank statement. If I can verify exactly what the difference is in terms of outstanding checks and deposits, then I not only have confidence over the ending balance in the checking account, but that gives me a high level of confidence over all of the transactions within the checking account. And if I can have confidence over all the balances within the checking account, then I can have more confidence on the other side that the double entry accounting system, the other side is going somewhere, right? So that means the other cycles are are are correct to some degree or at least recorded in some fashion using the double entry accounting system for the customer cycle or revenue cycle, the expensive cycle or purchase the cycle, and the employee cycle. So that's the general idea and we'll dive more into it and do two months of bank reconciliation. As we go forward, the first month usually being a little bit more difficult. We'll talk about some problems often encountered in it. The second month typically being a little bit more easier and more routine, that'll be what we would expect going forward.