Just like balancing your checkbook, you need to review your accounts in QuickBooks to make sure they match your real-life bank and credit card statements. To reconcile means to “make one view or belief compatible with another.” In accounting, that means making your account balances equal to one another. More specifically, a bank reconciliation means balancing your bank statements with your bookkeeping. Sometimes your current bank account balance is not a true representation of cash available to you, especially if you have transactions that have not settled yet. If you’re not careful, your business checking account could be subject to overdraft fees.

Bank Reconciliation: Purpose, Example, and Process

This is due to the time delay that occurs between the depositing of cash or a what is the matching principle and why is it important check and the crediting of it into your account. If your beginning balance in your accounting software isn’t correct, the bank account won’t reconcile. This can happen if you’re reconciling an account for the first time or if it wasn’t properly reconciled last month. When reconciling an account, the first bit of information you need is the opening balance. If you choose to connect your bank and credit cards to your online account, QuickBooks will automatically bring over transactions and also the opening balance for you.

Before you reconcile your bank account, you’ll need to ensure that you’ve recorded all transactions from your business until the date of your bank statement. If you have access to online banking, you can download the capital and maintenance bank statements when conducting a bank reconciliation at regular intervals rather than manually entering the information. It’s recommended to reconcile your checking, savings, and credit card accounts every month. Once you get your bank statements, compare the list of transactions with what you entered into QuickBooks.

Example 1: Preparation of Bank Reconciliation Statement Without Adjusting the Cash Book Balance

In the realm of modern business, leveraging technology to optimize financial difference between depreciation and depletion management has become an imperative. QuickBooks, a leading accounting software, stands as a crucial tool in this endeavor. Its advantage lies in its ability to streamline and enhance the account reconciliation process, thereby contributing to the overall financial health of an organization.

1. In QuickBooks, you have the option to make an adjusting entry if the difference isn’t zero when you are finished reconciling.
2. When your business receives checks from its customers, these amounts are recorded immediately on the debit side of the cash book so the balance as per the cash book increases.
3. The bank will debit your business account only when they’ve paid these issued checks, meaning there is a time delay between the issuing of checks and their presentation to the bank.
4. Make sure you enter all transactions for the bank statement period you plan to reconcile.
5. You enter the balance of your real-life bank account for whatever day you choose.

Step 4: Make Sure the Balance As Per the Bank Matches the Balance As Per the Cash Book

If you suspect an error in your books, see some common bank reconciliation errors below. Finally, compare your adjusted bank balance to your adjusted book balance. Since you’ve already adjusted the balances to account for common discrepancies, the numbers should be the same. You’ll want to look at your statement, starting with the first transaction listed and find that same transaction in the Reconciliation window in QuickBooks. Below, we delve into a detailed explanation of the account reconciliation process within QuickBooks. QuickBooks has built-in compatibility with time-tracking and payroll.

Since all of your transaction info comes directly from your bank, reconciling should be a breeze. However, businesses with high transaction volumes might benefit from more frequent reconciliations. Give your accountant direct access to your books so she can find the reports and information she needs when questions arise. Create a separate login for your accountant to make it easy for her to work with you. You can exchange messages and share documents directly inside QuickBooks, too.

Once the adjusted balance of the cash book is worked out, then the bank reconciliation statement can be prepared. As a result, the bank statement balance will be lower than the cash book balance, so the difference will need to be adjusted in your cash book before preparing the bank reconciliation statement. The purpose of reconciling bank statements with your business’ cash book is to ensure that the balance as per the passbook matches the balance as per the cash book. Your bank may collect interest and dividends on your behalf and credit such an amount to your bank account. Likewise, ‘credit balance as per cash book’ is the same as ‘debit balance as per passbook’ means the withdrawals made by a company from a bank account exceed deposits made.

After adjusting the balance as per the cash book, you’ll need record all adjustments in your company’s general ledger accounts. When your balance as per the cash book does not match with your balance as per the passbook, there are certain adjustments that you have to make in order to balance the two accounts. In addition, there may be cases where the bank has not cleared the checks, however, the checks have been deposited by your business. Banks take time in clearing checks, so the bank needs to add back the check’s amount to the bank balance. Such errors are committed while recording the transactions in the cash book, so the balance as per the cash book will differ from the passbook. It is important to note that it takes a few days for the bank to clear the checks.