The Simple Guide to Reconciling Your Bank Account

Why do we need to reconcile our bank & credit card accounts?

To keep it simple... Because we want to make sure the transactions reflected in your business records match the transactions recorded by your bank.

We use bank (and credit card) statements to double check that the accounts in our bookkeeping system, accurately reflect the transactions in the physical account they represent.

The use of systems like double-entry bookkeeping help ensure that you enter the correct numbers in the right places; bank reconciliations is the "bow" you tie on your account that lets you know that all of your transactions were recorded correctly, then they match the actual transactions and balances in your bank accounts to make sure you didn't make any mistakes.

Now you might be wondering, do ALL of my accounts need to be reconciled?  The simple answer is no.  But to help you know which accounts do need to reconciled, here's a quick refresher about how your accounts in your bookkeeping system are organized.

Chart of Accounts Overview

A Chart of Accounts, or CoA, is an organization of all the different records kept of the financial transactions of your business. It allows you to easily navigate to whatever account you need to look at.  If you're wanting to to learn more about how develop a quality chart of accounts tailored to your business... check out our blog post here.  If you're wanting to download our sample chart of accounts, you can get it here.

Review of Basic Small Business Accounts

Income: Any sales or money received for services should be recorded in an income account. You only need one, but you may break your income into different categories as you likes.  We always recommend you keep it simple.

Bank Accounts: Your business checking, savings, and credit card accounts should all be included in your bookkeeping.

Checks: Just like you keep a check register for your personal checks (we all keep check registers these days, right?!), you should enter and record all of the checks that your business is writing.

Expenses: Supplies, bills, the money going out of your business. You should record where and to whom the money is going.

Chart of Accounts and Reconciliation

You won’t need to reconcile every account in your CoA, only some of them. This is because many of the accounts in your CoA represent categories of transactions. For example, you should be recording all of your expenses, but there are different types of these expenses, like office supplies or utility costs. You don’t need to reconcile a category account like “office supplies.”

The accounts you need to reconcile will have corresponding “real world” counterparts, like your bank account or credit card. All of your categorical accounts (the types of expenses and income) are used to explain the types of transactions occurring.

Bank Reconciliation

Bank reconciliations match up the bank balance on a given date with the bookkeeping records on the same date. To do this, you match the various debits and credits that occur in your books with the same transaction on your bank statement.

Reconciliation in Quickbooks Online

To reconcile an account in QBO, the first thing you must do is make sure that you have entered all of your transactions into your books. Then you should make sure that they have a payee and a category. In Quickbooks, you add or match a transaction in a selected account to add it to your books.

If you view an account in the register, it will have a symbol in the column next to the account balance:

• C indicates that a transaction has been cleared and is tentatively added to your books.

• R indicates that a transaction has been reconciled 
• Blank means it was manually added and it will probably have an image of a green check register.
• The Payee helps us keep track of who is paying us and who we are paying. It also makes transactions easier to search and find later.
• The Account is the category of transaction.

Reconciliation Window Breakdown

To start your bank reconciliation, you should confirm that your beginning balance in QB matches your beginning balance on your bank statement.  Usually this number will be showing on your bank statement as "balance last statement". 

QBO will also ask you for the date. Most bank statements closing date is the last day of the month.  But credit card statements can be all over the place. So be sure to double check.

The ending balance should be the easiest one to find from the statement and enter in Quickbooks.

After you provide this information and hit next, QBO will take you to the reconciliation screen, which looks like this:

At the top, QBO will tell you your starting balance, ending balance, the number of selected debits and credits, the cleared balance (the net difference between debits and credits), and on the far right, the difference between what you have selected and the ending balance of your account. When the far right number is zero, you will see a green check mark. ✔️ This is when we clap and cheer and give ourselves pats on the back

because the green checkmark means that you have successfully matched all of the correct transactions and can reconcile your account! 

Your bank statement will list the credits or deposits to your account and give you a total. You want the total that QBO displays to match the total on your bank statement. The same thing goes for the debits too. If both of those numbers match the totals from your bank statement, the difference on the far left will display as zero, and you know you’re done! (Except for the occasional bank charge!)

As you go through your reconciliation window, you should also be looking at the transactions that you are matching with your bank account to make sure that they have categories. Even though this is something that you want to do before you reconcile, this is a good time to double check that you went over each transaction!

Tips and Tricks

There are several reasons why you may have trouble reconciling an account. Here we’ll go over some of the most basic and easy to fix problems that you’ll run into when doing your bank reconciliations in QBO:

• Dates: Some transactions might not post to your bank the same day that you recorded them, especially when the transaction in question is a check or a deposit; most checks will be cashed several days after you write them.  Similarly, most deposits will clear a couple of days after  they are taken to the bank.
• And... because we're humans, we do occasionally make mistakes.... And we are capable of human errors (at least most of us :).  So.... Sometimes, when entering transactions into Quickbooks, you may enter the wrong date; if this happens, the check or transaction might not show up in your register for the correct time period.

• Duplicate Entries: Sometimes an entry might be recorded twice. Each entry by itself is correct, but you cannot reconcile both of them, because they both didn't clear the bank, only one did! When you have duplicates , you need to delete one of the duplicate entries.
• Incorrect Starting Balance: Sometimes when you go to reconcile an account, you will find that the starting balance is off. This is almost always caused due to editing a transaction that you have already reconciled in a previous period. Quickbooks will prompt you to look at their “discrepancy” report which will show you all the previously reconciled transactions that have been fixed.

Reconciliation Recap

We reconcile our bookkeeping records with our bank statements to ensure the accuracy of our business records. Accurate business records allow us and our small business' to make informed decisions about growth, sales, and so many other things! Good bookkeeping records also allow us to make predictions about the future of our business and they support analysis and creation of reports that give us insights.  

Are you still needing help?  Check out our FREE lesson here!

We Hope to See You Again Soon!

In the last few months we’ve covered a lot of information about Quickbooks Online and good bookkeeping practices. Over the next few weeks we’ll introduce you to more details about Quickbooks Online features and the many integrations QBO has to make your life easier.  Saving you time and helping you to scale your business to be even more successful!

Disclaimer This article presents general information and is not intended to be tax or legal advice.  Refer to IRS publications and discuss possible tax deductions with your tax preparer.