 Zero Accounting Software 2023 Credit Card Reconciliation Month Number One. Get ready to become an Accountant 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 were just given to us by a 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. Focusrite Scarlett Solo 3rd Gen USB Interface with Software Suite. I've been using a Focusrite for years for my audio needs, before which time I had a USB microphone which plugged directly into the computer, but I think you'll find, as I have found, if you want to increase the quality of your microphone, you will need an interface, and the Focusrite is the go-to interface as far as I'm concerned. I've been using this for years now. It works well, it's easy to use, it seems quite durably built. Because I only do the screen recordings, I only need the one solo interface. However, if you have multiple microphones you need to plug in, or if you have other instruments you need to plug in, you can look at a similar model that has more input ports. 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 the bank feed file. We're going to duplicate some tabs to put those reports in, as done every time. Right-click it on the tab to duplicate it. And then that duplicated tab, we're going to duplicate it again. Right-click and double duplicate it. Then we're going to go back to that tab to the middle. Accounting drop-down. Open up one of the famous reports. The big balance sheet report needs no introduction. Everybody knows the balance sheet when it walks into the room. Hit the drop-down again. The other one, it's buddy, it's pair. The profit and loss or the income statement. Let's change the range. I'm going to now be going up through August this time because we're going to do a bank reconciliation for the credit card through August. So it's going to go 2022 bringing it from January. Let's keep it January 1st to 2022 and August 31. Update it. Let's go to the middle tab now. And we're going to change the date range on this one to August as well. So I'm going to customize this one. Dropping it down on the month, bringing it to August and 31. Update that one. Let's go to the first tab and recall that we connected to the bank feeds. We've been doing our bank information populating from the bank feeds. Accounting drop-down bank accounts. Now, the thing we want to note here is when we first add the data, whether that be the data from the checking account or the credit card account, it's only adding the data for the current timeframe. We're not picking up the ending balances. Some people get kind of frustrated with that at first because when we go to our, for example, we're looking at our credit card here, but we'll look at the checking account having a similar situation in a future presentation. So a lot of times if I say, okay, I'm going into my credit card and here's all the information that pulled through on the reconciliation. I've reconciled everything here. Here, therefore, my ending balance should be correct on the balance sheet. So if I go to my credit card, I should have a credit card balance as of the date of August 31, 2022. That's important. And note, this is also why when you actually do the reconciliations or think about reconciling, you have to think about it as of a certain point in time. So we want to be reconciling as of a certain point in time. Usually not the current day, although in some cases, like with the credit cards, you might be able to do it on a day-to-day basis due to the fact that you're constructing your books directly from the credit card statements. But if you have any reconciling items, then you're typically going to do the standard thing, reconciling it monthly, reconciling items being outstanding items, usually on the checking account side of things. We'll talk about later like outstanding checks or outstanding deposits, things that you know about, but the bank does not know them out. The credit card is a good lead-up into the reconciliations for the bank accounts because the credit cards usually don't have any outstanding items because we're constructing our entire books directly from the credit card statements. However, when we first do the first credit card statement, it usually won't tie out. I'll have something like this. Here's 47729. And if I go over here, the ending balance is 52271. This is my mock credit card statement. So we didn't have much activity here at the beginning one. But the charges we made were down here. This is the ending balance. What's the problem? Well, the problem is we don't have the beginning balance. Now, again, a lot of people look at the bank feeds and say, well, it should be able to figure that out. It should be able to just give me the balance because it knows the ending balance because it's connected to the bank. Why doesn't it just give me the ending balance? And the reason is because accounting software isn't designed to just give you the ending balance. It's designed to give you all the detail because what you really want to do is use the detail to either verify the data input that you have done or create the data input, not only creating the balance sheet in the process, but also the income statement. So zero can't just say, I'm just going to pull in the ending balance and make it correct because then it would lose the detail that is creating the double-entry accounting system. So there are other softwares that can do that. Financial software can do that. I think there used to be like a personal capital, like online software, and there was a... There's other softwares that you can even do it in some forms of Excel, I think, actually pull in the ending balances from your financial institutions, such as banks, such as other financial institutions, investment institutions, like an E-Trade and that kind of stuff. And that'll give you a balance sheet based on the current value of your information from the financial institutions. What it won't give you, however, is an income statement. And so that's what the accounting software was trying to do, give you the income statement through the bank feeds, but bringing in the detail. Okay, so we have this beginning balance issue. So what is the beginning balance issue? It's the beginning balance. We're missing the beginning balance in the data because I had information that was charged to the credit card before I started adding it to my current accounting. So either that was from the prior accounting system or maybe it was a personal credit card before and now I'm making it like a business credit card or something like that. So I have to deal with this beginning balance issue. Let's see that in the reconciliation process. So if I go to the first tab, I can say, okay, how am I going to fix this? Because it says I'm reconciled, but the statement balance is wrong. So how am I going to fix this? Let's take a look at the actual reconciliation report. So to do that, I'm going to go to the tab to the right click and duplicate it. And zero has a pretty neat reconciliation report that you can kind of see it being constructed as you go, which is pretty neat because the reconciliation reports are a little bit different than other reports, accounting drop-down reports. Like if you do this in other accounting software, like a QuickBooks Online, for example, sometimes the reconciliation reports look a little bit different and are pulled up as like a PDF file. Let's do bank reconciliation. Bank reconciliation. So we're looking for the bank reconciliation report. And all right, so to do this, however, we're going to say that this is going to be for August. So I'm going to pick up the date range of my statement over here, which is August. So I'm going to say 2022 Jan through 2022 of August 31. The bank account that we're looking at is the credit card. The tricky thing here is you're going to manually input the ending balance from the credit card statement. Now, this is kind of designed because it's the same thing from a bank statement to a credit card statement. So this being from a credit card statement, it's going to be a negative balance because it's going to be a liability. So we have a negative balance of 52271. So I'm going to say negative 52271, 0.71, 522.71. And then we'll update it. And here's our bank reconciliation report. So it says here we have the balance in 0 is 47729. That's what's on our balance sheet, 47729. And then there's no outstanding payments and outstanding receipts. That's because we checked everything off. There's nothing outstanding. In a credit card, there will almost never be anything outstanding because we're usually going to be constructing our books directly from the information from the credit card statement. Therefore, we're going to add all the information in, which is different than a bank reconciliation in which case we might have reconciling items such as outstanding checks and outstanding deposits we'll touch on later. So in that way, the credit card is way easier. But then we got the statement balance that has been calculated, which is off from the actual statement balance 52271. There's the actual statement balance 52271. It's a negative. The difference between the two, because this is a negative, is $1,000, which of course is the beginning balance. We're off by the beginning balance. What do we need to do then? We need to add the beginning balance. All right, so let's go back on over. That should be easy enough to do. Should it not? Let's go to the first tab. Now I'm in the credit card just to double-check that accounting dropdown. We're in the bank information. And then we're in the credit card right here. And now I'm in the account transactions in the credit card. And I'm going to say we want a new transaction. New transaction. And it's going to be a new spend money. Remember that the spend money form for the credit cards means that we're spending money like we don't have. So it's going to be an increase to the liability instead of a decrease to the asset of cash increase the credit card liability. So note that I'm just going to enter the beginning balance as like a generic lump sum. You could go back to the prior transactions that generated the $1,000 and try to see what they were for and kind of recreate them. But oftentimes we're going to say, hey, look, I'm going to make my accounting system as of this point going forward. If I want to look at the prior stuff that I can look at my prior accounting system. So I'm just going to say that this is going to be a generic or miscellaneous. Let's just make a miscellaneous contact and then tab. And then this is going to be as of the beginning. So it's a beginning balance. So I'm going to bring it back to $2,000. Bring it on back. So to August 1st, 2022 and then no item description. I'll say beginning balance and then the account that we wanted to go to. Now, if we had the $1,000 that we were using for business in the prior period and we're just setting up the beginning balances, then it might go into say retained earnings, for example, because it would have ruled through the income statement and then going into the equity section of retained earnings. And note that you usually want to do this, start your new company file like at the beginning of the year, like in January instead of the middle of the year. So you have a whole year of information in the current year. And then your beginning balance information you could put into the prior period so it rules in to the current period or just directly to a balance sheet account. It might also be the case or it could be the case that you had the credit card as personal before and now you switched it over to business or something like that, in which case the prior purchases on the credit card would be for personal use, which would be like a draw, right? It would still be like an equity kind of account because it would be like in the equity section. So either way we're going to say it's going to be an equity type of account and I'm going to put it just indirectly into equity, let's see equity retained earnings. So I'm going to put it right into the retained earnings and you want to be careful hitting retained earnings, but with the beginning balances that's the exception to the general rule. All right, let's save it and an error occurred until the price. I need an amount. That's important. $1,000. $1,000. Thank you, Zero, for pointing that out for me. Transaction has been saved. Let's go to the balance sheet and check out K-PASO. What happened? K in the world, PASO round here. So then if I go down, we're going to say that the credit card has now flipped back to the proper balance of a liability instead of an asset. I'm going to go into it because now we owe money, right? It's properly owing money. The credit card company never owes us money typically unless something strange is happening. And so we're going to say there's the $1,000. So this is all the activity that is happening. So if I'm checking off the activity to my bank statement now, I could say, okay, there's the $1,000. This checks off, check it off, and I've reconciled that. Boom. And there's the $4,77 checks off, bam. And therefore I have the ending balance of $52271. $52271. I can also look at that from a reconciliation standpoint, jumping on over here and go to the accounting dropdown and go to the bank accounts. I'm already in there, but I'll do it again just because it's fun, okay? I like doing that. So then if I go into here and I look at August, let's go and see if I can rearrange this. August, we have the activity that's happening. If I'm checking this off, I can check it off here too. So I'm just going to go that checks off, that checks off. And August, so I should be reconciled in my report except that this one has not been reconciled yet. We entered it on our side, but it hasn't cleared the bank. That almost never happens with the credit card because usually we construct our books from the credit card and this is the only time it will happen because from this point forward we will be constructing our books from the credit card. Before we fix that, let's take a look at the bank reconciliation if I update the bank rec. Now we've got the zero balance at $52271. That's what's on the balance sheet. Let's back it up so I can see it on the balance sheet this way and we're going to scroll it down. So $52271, $52271. And then we've got the outstanding amount. Why is it outstanding? Because we haven't checked it off yet. So that's a reconciling item to get to the statement balance and then we've got the bank balance ending balance and so the calculation of out of balance is the $1,000. So what I'm going to do now is make this part reconciled which will add it to the bank side of things which hopefully will clear this up. So let's go back to the first tab and say all right that bit right there we want to reconcile it. So one way you can do this you've got to force the reconciliation. I'm going to go into it and then you have your options up top and I'm going to say mark it as reconciled. When I mark it as reconciled it's going to add it to the bank side of things. Again this isn't normally what you do you're not going to have to do this going forward because remember all of your information is coming from the bank so you already have that information. So it shouldn't have a system where something is on our side and it hasn't cleared the bank unless they're outstanding items in which case we don't check them off until they clear the bank which will happen in the future but in this case it's not an outstanding item it's the beginning balance that's not in the system that is there from the prior period right. So that's the exception to the rule that we're going to add this on the bank side of things and then we're never going to have to do that again. So I'm going to say let's mark it as reconciled and it is recommended that you only mark as reconciled in cases where you are the original bank transaction data cannot be imported so that's the case right here because it's the beginning balance we didn't import the original bank transaction data. So if I go to the accounting drop down again bank accounts and back into the credit to the card we're going to the credit card we can see it's reconciled now we still have everything reconciled up front and so that looks good. Now this balance is as of October 11th so we can't really go by that we could go to the reconciliation report now and if I update the report we have a very bland report right we have the zero balance which is now 52271 if I go to the balance sheet it's still the 52271 the fact that we reconciled it didn't change we didn't record anything new by doing that we recorded it on the bank side of things not on our side of things again so no new transaction if I go into this we have the same detail that we had before and that's my beginning balance over here and then there's no outstanding items because we don't have any checks that we wrote that didn't clear we didn't enter any transactions on our side that didn't clear because we're completely dependent on the bank in this case for the credit card to do that we will have outstanding balances possibly in the checking account depending on the industry that we are in that's why the credit card should be easier once you fix this beginning balance issue the statement balance is 52271 this is what's been calculated which is this and then taken into account outstanding items and that matches what we actually typed in as the bank balance which comes from the credit card statement and therefore we're in balance now this is the bank reconciliation so it says out of balance nothing right so this is the bank reconciliation report if you were an auditor was to come in and say I want a bank reconciliation report this is the kind of thing that you would provide to them however with the credit card because we're constructing from the bank we shouldn't really have any differences between our books and the banks at any given time so we're just going to still do the reconciliation possibly monthly just to verify that we've we haven't we've got the beginning balance situation handled and we don't have any double duplicate transactions that have been entered and we don't have any transactions that have not been entered in which case our balance will be out of balance now you can kind of check that just kind of as you go over here because again your balance should be pretty much correct real time on your balance sheet because we don't have any outstanding items and that's what leads people to come to the conclusion that we don't need bank reconciliation at all anymore but we're still doing this is still like a bank reconciliation it just basically means that we don't have any outstanding items because again we're constructing our books from the bank which means we're kind of cheating on the accounting because usually the bank in a full service accounting system should be a double check not something that we're relying on to construct the books but because the timing differences is so short we can kind of do that now when you go to the so in the future we won't have the beginning balance issue so everything from this point forward should go forward very easily and the situation should be quite easy also note when we go to the checking account then you might be in some industries where we're in the same situation where you just construct your books from the bank balance but as we saw when we did the data input anytime you have those accrual components involved or anytime you're dealing with actual physical checks then you might have to deviate from relying on the bank to construct your books in which case it's far more likely than if you have electronic transfers to have some timing differences things that you entered on your side that haven't cleared the bank outstanding checks or outstanding payments even if electronic that you've entered on your side or outstanding receipts things that you've received and entered on your side that the bank hasn't cleared yet and those are going to be those reconciling items we'll take a look at in future presentations