 Zero Accounting Software 2023 Bank Reconciliation Reports Month Number One. Get ready to be 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 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. Here we have a Western Digital WD Elements 20TB USB 3.0 Desktop External Hard Drive. We use as part of our backup system, noting that if you lower the number of terabytes of storage, the price will lower dramatically as well. When you're thinking about a backup system, you're usually thinking about an online system or an external hard drive system like this or ideally some combination between the two giving you some redundancy. You can also work directly from an external hard drive like this, but there are some drawbacks to doing that. One being, if you use this as your primary drive you're working from, it's no longer a backup drive and you're going to need a backup system, possibly another external hard drive and or some kind of cloud backup system. And if you're working on something that takes up a lot of short-term memory, a lot of RAM as you're working on it, such as video editing, the external hard drive can slow up the system. So you might want to come up with some kind of system where you download the project you're working on to your computer, to your C drive or possibly to a solid state drive, which is a much more expensive external hard drive as you do the work. Once the work is done, then save the project to an external hard drive such as this. 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 given 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. Get great guitars! Duplicating some tabs to put reports in. Right-click in the tab up top so we can duplicate it. Right-click in the tab up top so we can once again duplicate it. Back to the tab, to the middle, Accounting drop-down. We want the balance sheet type report that we're going to open. Tabbing to the right, we're going to hit the Accounting drop-down. Open up an income statement. I'm going to open up a comparative income statement. But if you don't have that, open a normal income statement. Open up another tab for the balance sheet report. Right-click and duplicate again. Let's go to the Accounting drop-down up top into the reports. We want to open up the Bank Reconciliation which will be our point of focus. Bank Rec. I'm just going to type it in up top. We want the Rec of the bank. We're not going to rec the bank. We're reconciling to the bank. There's a difference. Don't rec the bank. Reconcile the bank. That's what you could say bank rec for short, if you want. Let's go to the first tab. What we did before is the reconciliation process by going to the Accounting drop-down. We went to the bank accounts. We went into the drop-down up here. I just usually go to the account transactions where we have these three tabs. You'll recall that we pulled in our information which you would typically have from the bank feeds or you uploaded the information as we did in a prior presentation. We checked everything off, meaning we reconciled everything from our bank statement information, the information coming in from the bank, and our account transaction information, everything that we input, noting that for the most part, we input stuff separate from what matched the bank. We didn't create our financial statements from the bank data, which you could possibly do, but we'll talk more about that in a future presentation. There's limitations to that process depending on the type of industry that we are in. We did more of a full-service type of system. We entered our information in first, then matched it to what's on the bank statement, only adding a few different items that we needed to add through the bank feed data, in essence, which we didn't know about, such as the withdrawals that we had and the bank fees that happened. Everything is reconciled now. Oftentimes, when people see this reconciliation process, they think this is the actual bank reconciliation report. This is the internal control of doing a reconciling process, which is very important, but the thing that is generated is, of course, the bank reconciliation report. Now, let's go to the report on the right-hand side that we opened up. This report, within zero, is quite interesting, and I like it a lot. We've touched in on it as we've created the bank reconciliation, because usually the bank reconciliation report is different than all of the other reports that we deal with for the most part. In other words, most reports other than the balance sheet and the income statement, those being the major financial statements, balance sheet and income statements, are geared towards giving us more information about one or multiple line items on the balance sheet or income statement, and the balance sheet and income statement accounts themselves are created as we do the data input. This is the end result of us entering checks, deposits, and so on and so forth. The other reports giving us more detail about these line items, they too being constructed as we do the data input. But the bank reconciliation report isn't being created as we do the data input, because it's an internal control type of report. This is going to be created by us matching what's on our side to what's on something else, a third party's books that being the bank. So that causes some problems with just pulling up the bank reconciliation because it's not being created like in the same way. So sometimes you'll see other software such as sometimes like a QuickBooks Online, for example, will have the reconciliation report pull up a little bit differently or it'll look like it's in a PDF style or something like that. And one of the reasons is because if you go back and change something on the bank accounts, that could mess up your bank reconciliation. So in any case, within zero, they've got this nice little system that makes it a little bit more flexible that you could still open up the report like in the normal kind of way or process. And the way we could do that is we can hit the drop-down here. And we could say this is going to go from January 1st to January 3rd. Let's just do a custom range. I'll say January 1st to January 31st. That's the range of our bank statement. And then we've got the bank to check-in account. We could do a reconciliation for a credit card too, but we're doing the checking account here. And then we have to actually enter the bank balance, which we should be able to get from the bank statement or from the bank itself as long as we have the balance as of a point in time. In this case, 6124185. So we've got 6124185. And then we can update that and it generates our reconciliation report for us. Now note in practice, once you generate the reconciliation report, you probably still want to save it as a PDF. So you have a hard copy in essence of it, one that will not change so that in the future, like if you can't get to the beginning balance, which you should, the bank will have that for some time. But if it gets old, you might not be able to get the beginning balance from your online banking or something like that. Or if you make changes, like something happens to some of the checks that have cleared, for example, like someone deletes a check that has already been reconciled, then that's going to mess up your bank reconciliation. And Xero has a system where it's trying to kind of create the bank reconciliation as you go. So if you went back and deleted something, something, the bank reconciliation that we created, which is now in balance, may be thrown out of balance, right? And then it would be night. What you would like to have is the bank reconciliation, which was in balance as a hard copy. So you can match it to the bank reconciliation you can create here, which is now out of balance, which again is really pretty neat that Xero has this kind of functionality of the report. Because in other softwares, possibly the bank reconciliation is hard-coded, in essence, once created. And the only way to change it would be to actually delete the prior bank reconciliation and fix it that way, which can be quite a problem if someone messed up the bank reconciliation a while back and then you've been building on it, you know, you'd have to fix the whole. So it's more flexible. It's kind of uninteresting. There's pros and cons of either system, but I appreciate the flexibility of Xero's system here. It's also formatted as a normal kind of bank reconciliation. It's not giving us a bunch of other garbage or maybe not garbage, but a data that's not really necessary for the bank reconciliation. In other words, it's not giving us a repeat of what's already on the bank statement as some other software like QuickBooks does. It basically recaps all the data that has cleared on the bank reconciliation, which isn't usually what we're looking for. We're looking for the reconciling items, the things that are basically outstanding. In other words, if like an auditor was asking you for a bank reconciliation to give you more verification about your numbers, what do they want to see? They want to see the reconciliation between your book balance and the bank balance, right? They don't want to see everything that has cleared, which you can see on Xero's report is right up front, right up top. That's what they're going to be focused on here. So I really like the format of the report, which makes sense. Now, just a quick recap on the importance of the bank rec. Remember that the reason the bank rec is important is that if you just put your numbers into the accounting software instead of just building your financial statements from the bank statements like in Excel or something like that, you are using a double-entry accounting system and that's reflected by assets equal liabilities plus equity. You have just greatly increased the confidence level of your numbers. However, you can still not put something into the system, right, or something like that. So the other biggest internal control is the checking account. So you can see now we're reconciling the checking account. Let's bring this checking account back to January. I'm going to hit the drop-down, customize the date, bring it back to January because we've reconciled by the end of January. We're checking the checking account, but that's not the only reason we're doing it. What we want to do is get an exact check of the checking account because that will also verify everything going through the checking account and since the checking account is the lifeblood of the company and runs through every other cycle, we're having another big, really big internal control to verify that all of our accounts are correct. That's really what we're doing here. So if I had this number, for example, and I said that's pretty close, that's within like $200 of what's on my checking account as of this date, that might be fine for the checking account. You might say, I'm cool with that, but you're not really verifying the fact that that $200 difference could have been made up of like 20 deposits and 50 checks or something like that that you didn't input into the system. So the checking account is still not that far off, but we're missing a whole lot of detail which can have a much different look on like the income statement versus the balance sheet and that kind of thing. So what we want to do is tie this out exactly. Now, if you were creating your bank, your accounts from the bank feeds directly, meaning you waited till everything cleared the bank like and you just took these numbers that come into your system through bank feeds and use them to create your accounting system, then you shouldn't have a difference between the checking account and the bank account because you're not really doing a full service accounting system. You're building your books from the bank, not using the bank as a double verification, but instead as your primary source of data as you put into the system, which you could only do if you're in certain kinds of business industries, which we'll talk more about when we get to the bank feed course or section. You still want to do the bank reconciliations, however, which will be really easy because you're just going to obviously what's put in your system matches the bank because you put it in your system from the bank. But that will help you to make sure that you didn't double input anything or not put something in. However, if you have some transactions that you're putting into the system separate from the bank, then of course you have to reconcile and this number may not and often won't match exactly what's on the bank statement at any given time due to outstanding items and that's what we're trying to reconcile. Those outstanding items might not be an error on anybody's part, but they're just items that have a timing difference because the bank doesn't know about them yet. If we can reconcile those exactly, then we have a verification that all of our transactions are basically correct. So it has to be an exact kind of reconciliation. So like that said, let's go back on over here. The first number on our bank record is 8864525. That ties out to what's on our balance sheet. Perfect. And then if we go over here, we've got the summary data outstanding payments. Now, those are going to be payments that we made. We wrote checks, but they didn't clear the bank. That doesn't mean that the bank is wrong. They're not wrong. I mean, you kind of, in a sense, they're wrong, but they just don't have the information yet. They're right up to the point that they can be right given the information that they have. That's why we have this difference. And then we've got the outstanding receipts. So these are receipts that we know about. They're already in our balance. They increased our balance, but they're not on the bank side of things. That's why we're decreasing them to get back to the bank balance. So these are things that the bank doesn't know about. So we're reconciling from our balance to get to the bank balance, the 6124185, which matches what's on the bank statement. So note that if you gave this information to an auditor, it makes sense, but it's not all that they would want, because these two numbers look like you could have just made them up. That happens to just be the difference. So you want the detail of those two numbers, which Zero provides below. So this is the outstanding payments. These are items that we have written but have not yet cleared the bank. So a lot of times people think that the reason we do the bank reconciliation possibly is to double check that these outstanding items are legitimate. And that's not exactly correct. We do want to check that these outstanding items are legitimate. But what we really want to do is see exactly that these outstanding items, which hopefully are legitimate, make up the exact difference between our balance and the bank balance. Because if they do, they verify not only these outstanding numbers, which are maybe insignificant or immaterial in compared to the total bank balance, but they also verify all other things that went through the checking account. That gives us verification that all transactions that went through the checking account and had the other side of the transaction given the double entry accounting system going somewhere else are correct. That's what we're looking for. So we can look at these and we can say, are these legitimate by looking to see if they cleared in February? If they cleared in February, that gives us an indication that they're legitimate. If they didn't clear in February, they may still be legitimate because they might be checks that we wrote that someone just hasn't, they haven't deposited them or they haven't deposited them, so they haven't cleared yet. But we would expect these to clear in future periods and if we see them clear in future periods, it's not like we're going to say, hey look, they're not outstanding anymore as of January, they cleared just that they cleared in February. Yeah, but they're outstanding as of January 31st, so they're legitimate outstanding items because they cleared in February. We want a report to show that they are unclear as of January because that's the reconciling item which will allow us to get from our balance to the bank balance. Same with the outstanding deposit. Outstanding deposits are probably going to be less common because usually when you make a deposit, it should only take a few days for it to clear. And this will be the case with everything going forward. More and more the bank should be able to clear things faster and faster, whereas it used to be when you wrote a check and mailed a check, it would take a significant amount of time, so you have this significant lag, therefore more outstanding items typically that you will deal with. More and more that lag will be smaller but still possibly there and therefore we're still going to have to deal with it. And here we expect to have less of these deposits. This is a large deposit, so of course we want to make sure that it did clear, but as long as it cleared in February in a reasonable amount of time, it would still take five days, but it should clear by then, but as long as it cleared, then we're okay with it. We're like, that's fine. I still want to know exactly what it is because that's the reconciling item so that we can verify to the penny. Now notice if this is off by anything, like if this is off by like a dollar, then you've lost a huge amount of your reconciling power, not because a dollar is important, but because if this is off by a dollar, that dollar difference could have been a result of like 20 deposits and 50 checks that just net it happened to net out to a dollar, which means that the other side of the transactions, which are going to other balancing and income statement accounts in the double entry accounting system, could be way out of whack, right, because we're missing all of this data, even though our ending bank balance is correct. If this is on to the penny, then it's way less likely that we're going to have, that we have any of these, it must be that all the other transactions are working. That's what we're trying to get to. If this is on to the penny and say that gives us assurance that all the entries that we entered, we didn't miss any of the entries that cleared the bank. We've entered all of them in, and therefore our whole accounting system is working. Okay, so once you have this, again, you might want to save it as a PDF file. So you have a hard copy of it in the event that something happens in the future that throws your bank wreck off like someone goes in, for example, and deletes one of these checks in such a way that it messes up the prior bank wreck balance, right? That would mess up the bank wreck potentially. So you've got to be careful of that kind of thing, and you might want to close out the books after you do the bank wreck for the month of January, for example, so people don't do things and can't do things like delete stuff in a prior period or add checks posted to a prior period.