 the idea is to be able to drill down on the cash balance and say not only is the ending balance look pretty accurate but each of the transactions in the cash account of which there are more transactions than any other account typically due to the fact that cash is the lifeblood of the company meaning we have more transactions and more transaction types typically in the cash account than any other account on on the on the financial statements if I can verify all of these individual transactions we have because we have a double entry accounting system I'm also verifying the other side of the transaction and the other side of the transaction oftentimes is basically creating the entire income statement is built you know by by this process some companies might be building their entire books just from the cash transactions right so that means if you can verify the cash transactions you have more confident over the whole financial statement process so then the question is well how how exactly would I do that how how am I going to not just verify the ending balance in cash but verify each of the transactions that happened in cash so I can look at the timing statement of the income statement well if we look at the bank reconciliation over here or a bank statement this is a mock bank statement that we would get on a monthly basis we're not looking at the running balance from the bank but the bank statement as of a point in time that's why the bank statement is still important because it has a specific cutoff period so this is as of the end of January that we're going to be staying here and we know if we reconciled in the prior period then that's going to be our starting point and these are going to be the increases these are going to be the decreases in summary to get us to the ending amount and then of course we have the detail in our bank statement of the deposits and the withdrawals or money that's coming out of the checking account so we'll note that this number right here 61 241 85 is what is on the bank statement as of 131 the end of the month now if I go over to QuickBooks as of that same point in time notice this is a as of the end of January right here we don't have the same number we have something different here so we could say well it's pretty close it's close enough but what we would like to do is see exactly what the difference is between what is on our books and what is on the bank's books now you might say well hey if there's a difference there must have been an error that happened but that's not generally the case because in a in a normal full service bookkeeping system we will never have our balance possibly tie out exactly to what's on the bank at any given time due to the fact that we might have outstanding transactions that we haven't put in place for example it used to be that we had a lot more of these due to the fact that we used checks more often and when you write a check you have to actually write the check we know about the transaction but the check then has to be mailed the other person has to put it into the bank and the check has to clear therefore those outstanding checks are going to be part of the difference between what we know on our side and what the bank knows and with deposits you have a similar thing although deposits are clearing a lot faster they still could take like three days to clear though even if it were like an electronic transfer so if we're doing a full service accounting system we would make the deposit on our side we would know about it the quick book system or the bank doesn't know about it until it processes like three days later and at that point in time then it'll process so that means that our balances even if we did everything perfectly will be different from the the bank balance and if we can reconcile exactly what that difference is meaning I'm going to list out the checks that we know about because we entered them into our system but that the bank doesn't know about and the deposits that we know about and the bank doesn't know about I can look at my balance and see exactly what the difference is outstanding checks and deposits to get me to the bank balance and if I know exactly what the difference is not only do I have confidence about my ending balance here I also have confidence about all of the transactions because if I'm if I'm there to the penny then that means that I'm not going to have multiple transactions that add up to the difference in other words if I have a reconciliation that's off by like five dollars you might say well that's not a big deal for the cash account but that five dollar difference could have been from 20 checks and three deposits or something like that which means your income statement could be completely out of whack even those though there's only a five dollar difference on the financials for the cash but if you get it down to the penny it's very unlikely that that that you could get it exact even by by having multiple transactions that are out of balance on debits or credits or deposits and withdrawal so that's the idea that we're trying to do we're trying to reconcile to get it perfect and we should be able to do it because we're just going to tick and tie what's on our side to what's on the bank side now these days note that we have more electronic transfers these days than we had in the past so that means the timing differences are going to be less if we do electronic transfers also these days because we're more confident about the electronic transfers we might not actually record them on our side but rather wait till they clear the bank before we record them in that case we're not doing a full service accounting system we're basically just building our books from the bank and in that case if we were doing that then it would be true that our ending balance here would always tie out to what's on the bank statement we wouldn't have any outstanding items because we're not doing a full service system we're not entering our side and then checking it to the bank that's a full service accounting system where you can see it has an added layer of internal control because now two people are doing separate sets of books for the same thing we are and the bank is and then we're matching those two on the other hand if we wait till it clears the bank then really only one person is actually recording the transactions as they happen the bank and we're just taking what the bank gives us and recording it so it's still important to the to do the bank reconciliation in that case but it will be very easy because all of our transactions just came directly from the bank so if so so basically we would then do our bank feed transactions over here and as they come through on the bank transactions we'll just build our books from what what is given to us