QuickBooks Online 2021 bank reconciliation month two or for the second month of operation, we’re going to be focusing in on cash decreases in the bank reconciliation process. Let’s get into it with Intuit QuickBooks Online 2021. Here we are in our get great guitars practice problem, we’re going to be continuing on with our bank reconciliation, first opening up our balance sheet and duplicating the tab up top. To do so we’re going to go up to the tab up top right click on it, duplicate the tab up top down to the reports on the left hand, then selecting our favorite report that being the balance sheet report opening up the balance sheet report.
We’re going to range change it for the second month and month of time and point the point in time in which we’re doing the bank reconciliation, which is open to 28 to one and run that report. And then I’m going to close up the old hamburger here, we’re at the 109 6237. we’re comparing that to the bank statement over here. Here we are the ending point at that same point in time on the bank statement 104 744, we’re going to be comparing those two with the use of the bank reconciliation having started it last time focusing in last time. However, on the deposits, this time focusing in on the decreases those being the checks and payments.
So let’s go on back on over here, I’m going to go to the first tab, we’re going to go on down to our accounting down below. We’re in the reconcile tab that we have started at prior presentation, we’re just simply going to resume, the reconcile resumed the reconcile, gonna close the hamburger up top, we started off with the information in the Edit tab, beginning balance at 9335. That ties out to the 89 335 there as it should, for all times going forward except for the first bank reconciliation.
If you’re doing the first bank reconciliation, take a look at the prior presentation where we addressed problems unique to the first one, then we have the ending balance which we entered manually, the date of the reconciliation, that’s all we need. They’re closing that then out within selected the deposit side of things we tied out from the bank statement to the to the books, and we checked everything off and we have this one outstanding item which will be our reconciling item.
Now we’re going to do the same for the payment side of things, we’re going to be selecting the payments. In the reconciliation tab, we can then sort it by date, which is most common, or by other factors such as the reference number or amount, which can be useful as well, we’ll keep it sorted here by the date.
Once again, we’re gonna be comparing from the bank statement over to the books, if it’s on the bank statement, and it’s not on our books, then we probably have to add it meaning the bank’s probably correct, we just didn’t input it on our side for whatever reason, we’re probably going to have to add it unless the bank is incorrect or wrong, which is not generally the case. If it’s on our books, but it’s not on the bank statement, then that may be okay. Because that might be an outstanding item that just has not yet cleared the bank bank doesn’t know about it yet.
And this will be more common and you’ll have a longer range of a timing difference. When you’re dealing with checks. Then with deposits deposits being electronic transfers, oftentimes, therefore the bank should process them quickly. Checks may take a longer time, especially if they are a manual check that you printed your mail to somebody and they have to then get it deposited into their bank, their bank needs to talk to our bank that could take longer.
So note that on the decreased side of things, we could have a larger timing difference. And that means that the date that’s on the bank statement may not be as relevant as well for us to take and tie off from our books to the bank statement meaning this time here could be substantially after when we entered it into our books, making it a little bit difficult to to tick and tie these items out. So when we tick and tie these items out, then if it’s a check, then we have the date.
But the dates probably not going to be as useful. Because of that big timing difference, we got the check number that can be useful to help us to type things out and we have the amount that of course can be useful to help type things out. If we’re talking about electronic transfers, we will not have a check number. However, the date should be more relevant because an electronic transfer should clear the bank pretty pretty quickly.
So the date will then help us to type things out. The amount will of course help us to type things out. And we might have more information from the electronic transfer that will give us an indication of the vendor or things like that, which can also help us in those cases as well. So we’re going to be taking time off from the bank statement over to over to the books here. So we’re going to start off with the 11,000. And this cleared the bank on to five check number 105. So if I go back on over, there’s the 11,000. And if I look at it, there’s the 105.
And this is an item that was written in January, so it was written in January, it’s clearing in February. Let’s just get a better idea of that. I’m going to go to the tab to the next tab over I’m going to duplicate this tab right clicking on it. duplicate this tab and let’s see if we can go down to the report That we generated last time for January. So I’m going to go to, it’s not actually in the reports. It’s in the accounting tab down here, even though it’s kind of a report, as we talked about in the prior presentation or a prior presentation.
And then I want to look at the history, the history tab over here. This is the January bank reconciliation. If I go into the January bank reconciliation, we have in these outstanding items. So these were the items that were uncleared. So these were the reconciling items last time, including that $11,000, we wrote it in January, it didn’t clear the bank in January, now it’s clear and in February, that’s what we would kind of expect to see. So here it is, we got that 11,000.
Now cleared over here, I’m going to go back onto the bank statement, I’m going to make that a color, we’re going to highlight this saying okay, we found that, then the 500, on to five, the 500 on to five, there it is, once again, we wrote that in January. Therefore, if I looked at the last bank reconciliation, there’s the 500, which was uncleared on the last bank reconciliation, which is now clearing Now, going back on over these are the timing differences.
Going to go back then to our item here, let’s let’s yellow phi that one, then we’ve got the check number 10103457. So here’s check number 101034. So it’s check number one, zero and 23457. So here it is. 345 770. Once again, we wrote that in January, so it was outstanding. Last time three, four, or five, seven, was outstanding last time. So I’m going to go back on over let’s yellow five, that one, because we found it.
That’s what we do when we find stuff. And then we got the 628 8620 ad is here. So once again, we wrote that in January, that’s another item on the prior open items last month. So we had these, how much was that? Again, the 628 80. So there it is 628 80. Back on over here. Let’s yellow five. And so these are all things that we wrote in January that are now clearing, check number one, a 11135875. So 135875, there is that this one we wrote in February. So now we’re two things that were written in February and cleared In the same month. So let’s yellow phi, that one.
Nothing unusual there. So that’s what we expect to see we’re back to kind of a norm. So now we’re at the 33603360. And so there is that 1031 a one, three, so there’s that let’s yellow phi, that one. I missed a zero, but that’s okay. 135873. So I’m going to say 135873, there’s that one. Notice, they might not be in perfect order here. And that’s okay. Because they could clear they could clear the bank on different dates than then when they were written.
So they’re in our books, possibly in a different date order than the bank books. And then we got the 169 770. So 169 770. And that’s down here. So that looks good. Picking that one up, yellow fi it. And then we’ve got that let’s do two at a time, it’s get crazy 380 and the 156 12. Three a 156 12. That was impressive. I’m going to yellow fine, both at the same time, too.
Okay, and then we’ve got the 667 54. So the 667 54 there’s that one. So that looks good. We found everything that is a normal check or like electronic transfer. And we’re off, we don’t have the withdrawals still and the bank service charge. Those are typically things that we may not always have on our side, we should have to withdrawals if we pulled out cash, but we may not we don’t in this case, we’ve got the 520 that were that were different. There’s our difference. So as soon as I add those two items, we should be okay.
So we’ve checked everything off, except those two items. And all these items that are in blue, then are the ones that we checked off. That means that the cleared balance up top is close to balancing, we just need to add that 520 and the cleared balance will balance meaning everything we checked off, plus the beginning balance, you know will tie out. But that’s not our ending balance because our ending balance still includes these items that we did not check off.
The items that we did not check off are the reconciling items, the things that are outstanding, the things that we expect to clear in the following month, most likely. So you can then double check these I could go into these and say like this one, for example is concerning, because I wrote it to the telephone company, you would expect that it would have cleared within a month so that when I would be concerned with I would want to check it and say now I’m reconciling as of February.
I may even want to then go into my office Line banking and see whether this has has cleared in March. Because now if I’m doing the reconciliation in February, it’s got to be sometime in March, because I must have the bank statements to do it, which wouldn’t be out until sometime in March. So I can go to the online banking and check and see if that has cleared. If it has not cleared, then of course, I might want to contact a telephone company and say, hey, look, I looks like I’ve made a payment. And it’s not been cleared what’s going on over there?
Did you get the check? Did you get the payment, and then and then that’s what the bank reconciliation will kind of help us out to do in that instance, these items down here, they were written on 228. So we would expect them that those may not be cleared at this point in time, because they were written at the end of February. So it could be quite normal, that they wouldn’t clear the bank until sometime in March.
But once again, we can check that I can easily check in March because by the time we do the bank rec, it will be March, and we could check them if they have all cleared, then that’s great, that not only tells us that we’re okay with those items being timing differences, it also tells us that all other items that we have entered into the system are good, it gives us a much higher verification that the whole thing is correct. And if the whole thing for cash is correct, then because cash is involved in every cycle, that’s a huge internal control on every accounting cycle.
So that’s going to be what we do. Now. Now let’s go to the to add these last items, these 520 items here. So let’s go to the tab all the way to the right. And well I can do this a couple way. Let’s leave, let’s leave here, I’m going to say save it for later. And then we’ll come back into this item. And then I’ll go back to our hamburger into the accounting tab, which we’re already in. And then I’m going to go to the chart of accounts Chart of Accounts. And let’s just use the register to enter those items. So I’m just going to go let’s check out the register.
And then we’re just going to be adding these last two items, the 500 and the 20. So the withdrawal was 500. Now withdrawal means that the owner took the money out of the bank account, so the owner just drew money out. If you’re drawing money out, and it’s for business purposes, if you’re going to use that money for business purposes, and you want to deducted on your tax returns, you want the audit trail there, you want to have the information so that if there’s a question about it, you can answer that question easily.
So you don’t want to be drawing money out typically, cash out of the company, when you’re making a business payment, what you want to do is have the audit trail, which means you want to pay by cheque or electronic deposit or electronic transfer or credit card or something like that, that has the audit trail. So if you’re a bookkeeper, I would recommend to people to clients, hey, look, don’t spend cash on business things. Because it takes more work to get the audit trail than you might have other ways to do.
If you do do that, if you spend cash on things, you can have to give us the receipts and whatnot, we’re gonna have to enter that into the system, and make sure that we’re categorizing things properly. So we would like you to only be taking cash out, if you’re going to then use it for personal use. If you’re going to use something for personal use, don’t take the money, then don’t write like a check out of the business account for personal use.
But rather, you know, take the money out in cash or transfer it to your to your account, your business, your personal account, and then spend it on personal use. And that way when when money is just taken out of the account, we can always categorize it as a draw. That’s what we’ll assume this time. Last time, we assumed that the withdrawal that was taken out with some kind of business related item, if it’s a business related item, it’s going to decrease the net income, which could be good for taxes.
But again, you need to know that categorization of it. If it’s going to be if it’s going to be a draw, then we’re going to put it to an equity account two draws. Also just note that if you do spend money for personal use out of the business account, like let’s say you just you know you spent money for Disneyland or something like that out of and you spent it out of your business account because that’s where the money was, then you can just simply recategorize that when you put that into the system, you don’t put it in as an expense, you put it in basically as a draw, and you put it into the equity section, you don’t want it so you can’t do that.
But you don’t want to always be spending money out of the business account. Because it’s confusing, especially if you have another if you have another bookkeeper working on it. Because now the now when you do your bookkeeping, or if you have someone else do it, they have to know whether or not this restaurant, or that item or this or that was business or personal. And that’s a lot more work for them. So if you just have a separate account, and you just take and you say this is my business account, everything I spend out of it is business related, unless it’s a draw, and I’m transferring it to my personal account, in which case it’s a draw, then that would be the easiest system to use.
But again, you can kind of see if you spend something out it’s not the end of the world. If you spend money out of your business account, you just have to be more careful and allocate that out to draws and whatnot. So in any case, we’re gonna say that this time this was a draw last time it was a expense. So I’m going to go back on over here. Say we’re gonna say this is gonna It’ll be a new item, it’s going to be like an expense type of item, I’m going to put it on as Oh 228 to one. And I’m just going to say this is a draw. This is a draw. And we’re going to say that this was for $500.
It’s not going to go to an expense now, but some type of equity account, let’s take a look at the equity accounts and hit the drop down, check out the equity accounts here, pick the one we want. So notice, you might just put it if it’s a sole proprietorship, then you might just put it to the equity account, because there’s only one owner, but you still might want to break out. So notice, we broke out the investments, that’s the owner putting money into the company, instead of just put it into one equity account.
And we’re going to break out then the draws, which QuickBooks calls, pay quit owners pay and personal expenses. So when they say owners pay, don’t confuse that with payroll, they’re trying to just, they usually it’s called draws, but they’re trying to like indicate that, hey, look, if you paid for personal stuff, then you should put it to this account. That’s what they’re doing here.
Now, if it’s a partnership, then you’re going to want you’re gonna have to break it out partner by partner, and you could break out each partner and there and then another equity account for their particular draws. And so you can use that kind of system. But this is what QuickBooks has set up for us for the sole proprietorship. So I’m going to pick that out. And there we have it, what’s this going to do when we record it, decrease the checking account, other side not go into the income statement, but rather directly to the equity section.
So let’s say save it and close it, let’s check it out, go to the balance sheet tab on the right, I’m going to make it a fresh and freshen up the report and hold down Control scroll up just a bit, if I go into that checking account, then and scroll down, we’ve got on into February, we had that $500. There it is. So there’s the 500 decrease in the checking account back on over the other side, not going to the income statement, but rather going down here to the equity account where we have the pay personal so here’s the pay personal so here down here, the opening balance equity, we’re not using that anymore. owner’s equity, that’s kind of like retained earnings.
That’s where the income accounts flow into on the balance sheet owner investment, that’s the owner investing money into the company owner’s draws, that’s the owner taking money out of the company, net income, that’s the money on the income statement, that’s going to roll into the equity section, which will eventually go to and should be in the owner’s equity. So if I change the dates, that would just roll into the equity, which is kind of like the retained earnings account.
Let’s go back to the first tab again. And let’s do this for the other ones. So the other one was the bank service charges $20. So same date. And I’m just going to say this is a payment $20. Bank service charges bank service charges, and that’s it, this is going to decrease the checking account the other side then go into the income account that being the bank service charges, lowering the net income. So I’m going to save that. So there we have it, those two items included. Now I’m going to open up the burger again, and go down to the accounting.
And so we should be able to check those off in our reconciliation, we’re going to go to the reconciliation, tab up top, close up the burger, and then scroll down we’re going to resume reconciling, resume reconciling. And then if I scroll down, we can find then those two amounts. So there’s the draw for 500. That’s the one and there’s the $20. And now we’re at zero. So once you have that green checkmark, then of course, we’re tied out that means that the statement balance equals declared balance, meaning this isn’t our balance, right? If I go to my bank statement over here, and I refresh, and see here, we’re at the 1085 4237.
If I go back on over here that doesn’t match the cleared balance. The cleared balance means all the things that we checked off, our balance includes all the things we checked off and didn’t check off. The difference between the cleared balance and our balance is the things we didn’t check off. The things we didn’t check off are going to be the reconciling items when we get to the bank reconciliation report, which we’ll take a look at next time.
But the fact that this is zero means we did the process of reconciling and that’s really important. That’s good. We’re going to go ahead and finish this off and celebrate somehow somewhere doing something good. So you receive this account, you reconciled and so next time and next time, we’ll take a look at the report, bank reconciliation report that is