 QuickBooks Online 2024. Bank Reconciliations after having created our financial statements with the help and use of bank feeds. Get ready and some coffee because the accounting team is on hand with QuickBooks Online 2024. First, a word from our sponsor. Actually, we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us, but that's okay whatever because our merchandise is better than their stupid stuff anyways. Like our crunching numbers is my cardio product line. Now, I'm not saying that subscribing to this channel, crunching numbers with us, will make you thin, fit, and healthy or anything. However, it does seem like it works for her. Just saying. So, subscribe, hit the bell thing and buy some merchandise so you can make the world a better place by sharing your accounting instruction exercise routine. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Here we are in our QuickBooks online bank feed practice file we set up in a prior presentation. Let's open those major financial statement reports as we do every time the reports on the left hand side within the favorites. Right clicking on that balance sheet to open a link in a new tab. Right clicking the profit and loss or income statement to open a link in a new tab doing the same for the trustee TB trial balance. If you don't have that trial balance in the favorites, you can search for it. Let's tab to the right, close up the hamburger and change the range up top going from 010124 tab 033124 tab selecting the dropdown so we can see it in month format and run it to refresh it. Tabbing to the right, closing the hamburger again on the P&L, the profit loss, the income statement change that range 010124, hold on I think I messed that up 010124 tab 033124 tab month by month breakout, run it to refresh it and then one more time uno vase mas close that hamburger put that bun on the burger and we're going from 010124 tab 033124 tab months run it to refresh it. Okay let's go back to the balance sheet. We're now thinking about the bank reconciliation process after having created most of our financial statements from the bank feeds noting that bank reconciliation often get a little bit confusing or people get confused by them when they're using the bank feeds sometimes feeling they don't need to do a bank reconciliation because they used the bank feeds which I don't think is true. I think you should always do the bank reconciliation although in some cases your ending balance in your book balance might match what's on the bank statement at any given time if you constructed your books directly from the bank statement however if there is a problem with it even in that case the way you figure out the problem is you do the reconciliation to figure it out so I still think even then it's a good idea to double check the reconciliation and if you're doing a full service accounting system then it's going to be likely that your ending balance does not match what's on the bank books and you'll have to do the bank reconciliation that's going to be a huge internal control. So just let me point out that if you do your books within QuickBooks as an accountant as a CPA that makes me a lot more confident in someone's bookkeeping than if they just gave me an income statement for example by hand to do their taxes or something like that. Why? Because you're using the double entry accounting system represented by the accounting equation forced to do so from QuickBooks. That's the biggest check against errors. Second biggest check against errors is the bank reconciliation process. So that's why every company should do it large and small whether you use bank feeds or not. Why? You might say well because you want to get your cash account correct and it's true that you want to get your cash account correct but that's really not the point of the bank reconciliation. The point of the bank reconciliation is to get all of the transactions that are flowing through cash correct because you could check your bank account and say well it's pretty close. I'm pretty close to my bank account. I checked it on my online banking. It's different by like $200 and I think there's timing differences or something. I'm okay with that. That's not the point. The point is that if I go into the transactions within here because we have a double entry accounting system every transaction that goes through cash is affecting some other account oftentimes the other account being an income statement account. In other words our income statement is basically being constructed with the transactions that are going through also our checking account because the checking account cash is the lifeblood of the organization. So if I can verify that all of these transactions are correct I not only have verification over my cash balance which is important because that's a very liquid asset that we want to make sure that we're keeping track of but also I have confidence that my income statement is correct or at least I have included in my books somewhere legitimate transactions right that I should have recorded somewhere. I still might have posted them to the wrong account or something like that but at least they're in there. That's the goal. How can we get that verification from a reconciliation? Well because in theory the idea would be if we entered the transaction on our side and then we double checked it to the books or to the bank which is also entering the transactions on their side then we have two separate people that are double checking the transactions that are that are being put in place that gives us an outside verification. Now with the bank reconciliation and the bank feeds oftentimes that's not so much the case. Why? Because we're not doing the books on our side we're waiting till the things clear the bank and then creating our books from the bank which loses a bit of the internal control but it's still important to do the bank reconciliation because we still get a significant amount of internal control we're fairly confident that the bank is correct right that's going to be the idea. So if I can tie out exactly what I have to what the bank has and know exactly what the difference is then and I get that difference down to zero like I can know exactly what the difference is if there were outstanding checks and deposits that's how I can have assurance that all the transactions are correct. Okay so before we jump into it let's let's go to the flow chart over here this is a desktop flow chart that we're using for online purposes just to get an idea of the flow of the forms and how the bank feeds kind of fit into the process and recall that the easiest system to be using the the bank feeds to actually construct your books as opposed to verifying your books is a cash based system which we can think of by cycle meaning vendor cycle or money out expense cycle customer cycle or money in cycle revenue cycle and employee cycle. So on the vendor cycle that's usually the cycle where many small businesses can fit into a cash based system in which they can construct their books directly from the bank feeds quite easily meaning if we're paying our utility bills and our telephone bills we wait till it clears the bank and then we just record it to an expense account as it clears the bank instead of doing the accrual thing of adding a bill which would increase the accounts payable which doesn't have a cash component to it and as we saw in prior presentations that makes things more complex so and then on the revenue side of things the easiest system to actually construct your books from the bank feeds would be like that gig work kind of situation you get paid by like YouTube or something you wait till it clears the bank and just record it from the bank feeds as a deposit and that in those scenarios you're not really doing a full service bookkeeping system because a full service system would be we enter the transaction first on our side and then we verify it to the bank in which case the bank feeds could help us with that verification process in this case of course our books tie out to the bank because we built our books from the bank we didn't double check them from the bank we so that's why it's going to be easier to do but we saw that sometimes you can have to deviate from that small businesses oftentimes will have to if they're if they have revenue for example that's coming from a cash register and they want to implement an internal control and track say the the sales tax for example then oftentimes we're going to enter the transaction and deposit it on our side using the bank feeds to verify that's what the matching is on the bank feeds matching means the bank feed isn't recording anything new or possibly it is it's moving a transaction along the stream of transactions here but but oftentimes it means we're just verifying the transaction and therefore we're just checking what we put on our side to the books which is a more full service accounting system and then of course if you have a count an invoice then the invoice isn't a cruel thing where we have to track accounts receivable no cash impacted and oftentimes we might receive the payment and then deposit the payment once again using the bank feeds to double check in that instance although again we could use the bank feeds to match to the invoice or to the receipt payment each of the nodes along the way as we talked about in prior presentations and of course if you have payroll if you run payroll through QuickBooks then you're not going to construct your books directly from the bank feeds because you're going to have to do withholdings and things like that to process the payroll therefore the bank feeds will be double checking so we talked about all those different kind of scenarios where where you're you can't just build your books from the bank feeds but for the purposes of our demonstration here we're going to imagine that we built our books directly from the bank feeds and we have another course or section by the way if you want to get into bank reconciliations in more detail where we have outstanding items but i'm we're basically going to imagine we built our books from the bank feeds here in that case you would expect our ending balance on as of the end of the month to match the bank statements as of the end of the month because we built our books directly from the bank feeds we don't have any timing differences no outstanding checks no outstanding deposits but i still want to do the bank reconciliation process now in our case this number doesn't tie out here in our mock bank statement as of the period end january 31st we have then an ending balance of 3500 positive which looks similar but is not the same as the negative amount that's in there as of the same period now also note that when we do the bank reconciliation that means the bank statements are still important which is another thing sometimes people overlook because they they can see their balance real time on the the online banking so they think the bank statements are irrelevant but they're not because the bank statements give you that clear cutoff usually as of the end of the month so that we can do our we can do our reconciliations as of that point in time and see that we if we tie out as of that point in time so in our example we're going to imagine that we constructed our entire books from the bank feeds so how is it possible that our books don't tie out to the bank statement well in that case it's usually going to be the beginning balance of when you first start doing your bank feeds you might be using a a checking account that you've used in the past for example uh that has transactions before the point in time that you're starting your QuickBooks file in this case we had seven thousand dollars here before we started basically our our QuickBooks file in there that might have been from the prior accounting system if we were using the prior accounting system or it might be like our initial investment that we didn't pull in when we started our our accounting because we started pulling the transactions in as of the beginning of uh january for the new accounting system so we would like to have the cutoff as of the end of the prior accounting system so if we had say a prior accounting system then we're going to need to put in that beginning balance as of uh the prior accounting system so let's take a look at that internally if i go to the first tab where are the bank reconciliations where they're in the transactions tab here's where our bank transactions are now first you'd want to note that you have cleaned out all of your transactions we still have a couple over here in our checking account and so for the purposes of our practice problem i'm going to basically imagine that these are duplicate transactions and not include these transactions so if they were duplicate transactions we can select them all and we would have to exclude them not something you would typically want to do on the bank feeds if they were not duplicates meaning they've been entered two times because everything that comes in from the bank you would be something that you would have to include on your books in order to reconcile unless the bank is incorrect the reason the bank would be incorrect most likely is because you've added multiple uh transactions uh you've duplicated the transactions so i'm going to exclude those just to see that so it's nice and clean over here those would be and the excluded items in essence deleted but not completely gone so if we messed up we can undo the excluded items and then we can go to the reconcile tab and we're going to do our reconciliation so we've done those for the credit cards this time we're going to be doing them for the checking account so we still have this beginning balance issue whereas we're showing a zero here in our books but the bank statement shows seven thousand dollars that's the issue i'm not going to worry about trying to get it here because i can't adjust that i'm just going to add it as something when we do the reconciliation the ending balance we're going to plug in will be the three thousand five hundred three thousand five hundred as of the end of the period end of january note that when you do the reconciliation it's going to be sometime after january of course because you're going to have to have entered the transactions and got the bank statement sometimes you might be doing all of you could do bookkeeping for a whole year right in which case you would want to reconcile each month you know as you enter the as you enter the transactions any case will start the reconciliation we have our reconciling balances up top i'm going to close this and it says there's a three thousand five hundred we plug that number in uh with our uh we just plugged it in that's what we entered here in the edit information as our ending balance and then here's the cleared balance these two things have to match in order to get this to be green and therefore be good to go this is comprised of the beginning balance which is a problem because our beginning balance isn't that it's seven thousand and then we have the payments of thirteen four twenty four and the deposits of nine thousand twenty nine hundred twenty four those two match up perfectly how is that possible well in our we're imagining that we constructed our books entirely from the bank feeds and if that was the case then everything that we entered should tie out exactly and therefore your bank reconciliation should be really easy you shouldn't even have to check them off or if they were not checked off you can just check all of them off and see if this goes to zero in this case it did not because we had that beginning balance issue so what i'm going to do is i'm going to add that beginning balance i'm not going to worry about putting it here i'm going to add it in in essence the deposit field for my first reconciliation and then everything will be really easy going forward so how to do that let's go ahead and save for later on the bank rex save it for later i'm going to go into the register i go into the chart of accounts to do that and then in the checking account i'm just going to go into the register and i'm going to add a transaction so this is going to be a journal entry i'm going to make it as of the end of the first month 01 31 24 or wait a sec i should make it as of the end of the prior period 12 31 23 because i'm going to imagine this came from my prior accounting system and and so it's going to roll into basically the equity account now if if it was an investment that you put into your checking account which possibly could be the case then you would want to put it into equity which would be an owner investment it's going to go into equity either way but let me show you it's going to be memo this is going to be the beginning balance and i'm not going to have a class to it it's going to be a deposit of the seven thousand and then down here if it represents an initial investment that you put in the system you would want to put it into owner investments which would be an equity account if it was from the prior accounting system then you might put it into directly owner's equity or the equivalent retained earnings but sometimes people don't like posting to retained earnings so you might put it into like the income statement of the prior period which will roll into retained earnings because it's as of the prior year so i might put it into like uh sales income account uh for product sales okay that's in the prior period it'll still roll into basically the retained earnings but i won't be posting directly to retained earnings let me show you we're going to save it and then if i go to the balance sheet and we run that so so now we're at a positive three thousand five hundred which is what we're looking for let's bring this back to when we recorded it which was uh twelve thirty one two three twelve thirty one two three run it and then there's our seven thousand increase to the checking account that looks good and then the other side if i scroll down is inequity but it's included in net income meaning it's over here as part of the income statement if i change the income statement back to the prior year oh one oh one two three to twelve thirty one two three and run that and it's by month but we have the six thousand seven hundred we had another issue with the credit card when we did the same thing that six thousand seven hundred rolls into the net income inequity and when i go into the current period that rolls into owner's equity which is kind of like retained earnings so we're going to say let's go back up to oh one oh one two four two oh three thirty one two four run it and we can see that that amount uh rolled into the uh retained earnings so there it is in retained earnings and now i have net income for the current period so now we've got we've taken care of that beginning balance issue let's go back to our bank reconciliation i'll do it this way hamburger going into the transactions uh and then we're going into the bank transactions i'm sorry and then bank reconcile okay and then we can resume reconciling so now i have this amount here that didn't get checked off automatically because it wasn't entered from the bank feeds because the bank feeds are not going to pick up oftentimes the beginning balance sometimes they will if you connect directly to the bank it'll try to put a journal entry for the beginning balance but that sometimes can mess you up so be careful of that but we entered the beginning balance i'm going to manually put that in that's the only time i should have to do that if i'm doing everything directly from the bank feeds and going forward everything should be just checked off automatically now i'm at zero for my difference and everything is good now note if you weren't at zero uh then then you'd have to go in here and uncheck this and tick and tie everything out so you might first look at the deposits and say okay i'm going to take and tie everything out there's the one hundred the nine hundred the one thousand four seventy there's i'm going to uncheck one hundred the one thousand four seventy the nine hundred and then did do and then the two seven one zero and the three seven do do do right you'd have to check them all off uh individually and then figure out if there's something on the bank statement that isn't on your books then you would have to include them in your books and the question then would be how is that possible how could it be on the bank statement and not on your books when you used bank feeds because it should have flown into your books if it's on your books on this side but not on the bank statement that might be possibly a legitimate transaction that you've recorded correctly but the bank doesn't yet know about classic examples being if you wrote a physical check for example which would be outstanding that you have not yet matched or if you entered the deposit on your end before it clears the bank for example then you you might know about it before the bank does and therefore you have already entered it but you haven't matched it to the bank which would often be the case for small businesses that use sales receipts for example or invoices that we they've received payments on that means you're going to record the payments before and match them to what the bank does which means you could end up with those timing differences so then if I go to the payments I would have to do the same thing I could check all those off and select them and now we have everything checked off and we are good to go so this line still doesn't match exactly what you would expect here because it doesn't have that beginning balance but I know that that beginning balance is within the additions so these two added together are the additions of the 13 424 that's why it's in balance that's why it matches also just realize that this cleared balance is not necessarily the same thing as what's on you know on on the balance sheet right it's not it's not necessarily the book balance and and that's because if we had outstanding checks and deposits we would have some stuff that was not checked off down here which would be correct but the stuff that was checked off would be the stuff that came through the bank feeds the stuff that's not checked off would be the stuff that are outstanding this stuff shows only the cleared balance everything that has cleared the banks the unchecked off things would be the reconciling items of which we don't have any at this point also note that if this is not at zero then you want to you want to make it zero because if it's not at zero and you try to force to reconcile it's going to record a journal entry see how it doesn't give you the option to reconcile you could force it you could say close finish now and it says hold on it doesn't want you to do it and and so we're going to say go back and that's because you're going to lose a huge component of internal control if this isn't exactly at zero because even though it might be off by like a few dollars it could be a result of multiple deposits in multiple checks that are resulting in it being off by two dollars or something and the fact that it's off by two dollars doesn't matter with regards to the ending bank balance you could say who cares it's two dollars i don't care but if that two dollars is being made up of 20 deposits and 40 checks or something like that then that means that we're not getting the verification on all of these other transactions internally which could have an impact a huge impact on the accuracy of our profit and loss because of the other side of the transactions so we want to get it down to be exactly zero because that gives us verification that if it's exactly at zero then it's likely that all the transactions are correct it's not just that our ending bank balance is correct okay we've done that let's do that and let's finish it finish it and so your reconciliation so we've we've done it boom and then it takes us back here where we can go to the summary so here's our summary of our reconciliation and here's our history by account in this case we're looking at the checking account and within here you might want to attach the bank statement because then if there's an issue with it you've got the bank statement kind of in the same place i think that's a you know a decent practice to do you may also actually want to run the report and have a hard copy of the report because these reports are not the same as all the other reports all other reports generally being those that are constructed along with the financial statements as you do data input these reports are being constructed as an internal control comparing your books to the bank books which is why they're not housed in the same location as the other reports although if you search for them in the other reports it'll take you here meaning if i go to the reports here and i say give me the bank reconciliation reports if i go to the reconciliations it bounces me back over here into the reconciliations let's view one if i if i open this up here it is this is the summary which basically mirrors what's on the bank statement so it's kind of redundant information the main point of the bank statement is to compare the statement ending balance with the register balance they match now so our ending balance here matches what's on the bank statement so it's not that interesting of a report because we don't have any reconciling items it and that will be the case if we constructed our books directly from the bank feeds however if we had checks that we entered or if we had those deposits that we entered on our side that were matching to the bank for whatever reason possibly because we have to deal with invoices possibly we have to deal with inventory possibly we have to enter at a cash register or something like that then we're going to have these reconciling items timing differences things that we know about that the bank doesn't know about and then we're going to have the detail of those timing differences in the added information below so down below we have checks and payments cleared this isn't all that helpful but kind of interesting because that's already on the bank statement same with the deposits what we would want to see is the uncleared transactions of which there aren't any as of this point in time or as of the cutoff 131 these are the activities after the cutoff which isn't all that helpful for us as well because the bank statement is as of the cutoff so QuickBooks provides a whole lot of redundant information but the essence of the bank statement is comparing this number and this number and if they're different what are the reconciling items outstanding deposits outstanding checks there are none in our case because we constructed our books from the bank so let's then the next bank statement if we constructed our books from the banks in February is going to be really easy because we don't have any any beginning balance problems so if I look at the end of January we're at 3500 which is the beginning balance of February and if we constructed our books from the bank all of these numbers should tie out so our ending balance should tie out at any given time 922875 for example on the balance sheet we have the 922875 so you might say hey look it ties out I don't need to do a bank reconciliation it ties out real time that's true and you don't really have to but if you run into a situation where it doesn't tie out because possibly for whatever reason you doubled up on the transactions the bank feed fed you double the transactions or you excluded a transaction or transaction didn't come through properly which does happen sometimes although it's getting way better than it used to be then what are you going to do you have no way you how are you going to fix that when you fix that by reconciling so so you want to reconcile every month which will be really easy if you construct your books directly from the bank feeds and then you'll be prepared in the event that you have a double entry or missing one to know how to fix it so all we'd have to do then is go to the first tab and say I'm going to go reconcile and then say I'm in the checking account there's my beginning balance ties out to my beginning balance over here perfecto and then the ending balance is 922875 9228.75 as of the end of February boom start the reconciliation there's the statement balance that we plugged in there's the cleared balance it's the same it's already matched out it's already green this cleared balance gives us the same thing that's on the bank statement 3500 beginning payments 6978 deposits 1270675 matching here 3500 1270675 96978 to get us the ending bit 922875 so everything ties out perfectly because again the beginning balance is correct and we constructed our books from the banks therefore the increases and decreases have already been input as you can see with these little green things with the bank feeds however if there was a problem then you'd have to uncheck everything and do it one line item at a time and just look at all the deposits compare them look at all the payments compare them to what's on the bank statement if something is on the bank statement and not on our books then you'd have to add it to our books and ponder the question how in the world did that happen if we pulled in the information from the bank into our system if it's on our books and not on the bank statement then the question is was that a legitimate transaction that we entered into our books are we are we entering a check or something like that which is outstanding or or did was that an error an entry or something like that that we need to adjust or fix in some way shape or form but if this is good to go then you can just say all right finish it boom and reconciliation done and once again if I look at the history of the reconciliations here's the two for the checking we also did the the other account for the credit card you could do the same thing for paypal for example and then again I would attach the bank statements here so that you can have them ready so let's just I'll just show you that real quick we can just say boom like if our our CPA wanted to take a look and verify something we could just say I go ahead the bank statement is right there don't see that as a large image and then the bank statement for February we can just add that as an attachment so now they can look at the report and they can look at the attachment you may even want to generate the report and save it and attach it as well because I'm a little dubious of the reports I'm a little skeptical because if you deleted some of the items like you avoided some of these checks then is it going to void it real time that'll throw off your bank reconciliation right so oftentimes it's useful to print the bank reconciliation as of the time you finished it so that if someone goes in and starts deleting things you have the bank reconciliation before they did that and and you can make sure that you can try to piece things back together after that happens all right so that's gonna be it this is where we stand right now we did do a journal entry for the beginning balance of January so this is our books thus far and then here's our profit and loss thus far let's bring this back to the month of uh we're going from 010124 to 033124 run it and so there we have it and then we'll take a look at the trustee trial balance thus far running it if your numbers tied to these numbers great if not it might be a date issue try changing the date range and then you can drill down to the source document and change the dates if you need to next time we'll take a little bit more detailed look at all of the reports that we've constructed basically with the use of the bank fees not just the balance sheet and the income statement but some of the subsidiary reports and how they're related to the balance sheet and the income statement