QuickBooks Pro Plus desktop 2022 bank reconciliation mythbusting. Get ready because we bookkeeping pros are moving up the hilltop with QuickBooks Pro Plus desktop 2022. Here we are in our get great guitars practice file going through the setup process with a view drop down the open windows list on the left hand side company dropped down homepage in the middle maximizing to the gray area reports drop down company and financial which is going to be opening up the balance sheet this time to consider it.
00:31
We’re going to then customize it just looking at the first month which is going to be a 101 to two 212 Let’s say Oh 130 122 Just for the first month of operations. I’m going to go to the fonts and numbers. And we’re going to change that font to 14 and okay. Yes, please. And okay. So first, we just want to consider the role of what the bank reconciliation will do. Note that as time has passed, we have different technology with regards to say, for example, bank feeds.
01:03
And I’ve seen some presentations basically say, well, due to bank feeds, the bank reconciliation process is no longer like a thing are no longer important. For example, that’s not exactly the case. Even if you use the bank feeds, you might use the bank feeds in such a way that it’ll simplify, for example, the bank reconciliation process, but the bank reconciliation remains a really important thing for most businesses. So let’s talk about that in a bit more detail here.
01:28
What is the bank reconciliation process, it’s going to be the second biggest internal control that every business should do internal controls being used to make sure that your financial statements are reported, basically accurately. So the biggest internal control we have is first the double entry accounting system itself. So by putting information into QuickBooks, you’re forced to use a double entry accounting system meaning for example, the balance sheets in balance assets equal liabilities plus equity, that’s the double entry accounting system that reduces have the ability to make a lot of errors that you could make, if you were just, for example, just listing out your expenses,
02:06
for example, and listing out your, your assets and so on. So that’s going to be the first thing that can could help a lot to make a more secure kind of financial type of system. So if someone gives me the the bookkeeping, for example, and QuickBooks or some other accounting system, and it’s in balance, that’s going to give me more surety that the financial statements are, you know, more likely to be accurate to that degree. But there are, there are a lot of things that could go on and still to be unbalanced, but not be accurate.
02:35
For example, things might not have been recorded at all, or they could have been recorded wrong on both sides of the double entry accounting system or reported to the wrong account. These are all type of errors, that can still happen. And then the next internal control is to reconcile the checking account. So in other words, when you hear reconciliation of checking account, you’re probably thinking well, I want to make sure that this number is accurate on the balance sheet. because cash is really important cash is probably the most likely thing that people are going to seal because it’s the most liquid thing that we have.
03:06
And it is important for those reasons. But it’s also important because the cash is the lifeblood of the company. And the reconciliation doesn’t just verify this end number on the balance sheet. If I double click on that, it verifies the transactions that have gone into play to create to that end number on the balance sheet, thereby validating the transactions that have taken place, which not only validate the end number for the cash account, but also the other activity, meaning if these entries are legitimate, then the other side of the entry is legitimate to now it might be you could still have it going to the wrong account or something like that.
03:43
But the other side, the two accounts that are impacted, there should be two accounts that will be impacted. And that means that because cash is flowing through every other kind of area in the business, the vendor cycle, the purchasing cycle, the sales cycle, and the employees cycle, that gives us a verification to some degree, pretty good degree on the whole rest of the bookkeeping system as well.
04:06
So that’s why the bank reconciliation is going to be a really important thing to do. Now, if I go to the to the homepage, one of the reasons people people get to the conclusion that the bank reconciliation is not there with bank feeds. And again, we’ll talk about bank feeds more and the bank feeds section. But just to touch on this, notice that we talked a little bit about the fact that you can have a more cash basis or accrual basis bookkeeping system.
04:30
And you could go beyond even a cash basis to be reliant on the bank to create your books that’s a step even further than from a cash basis system. And so for exactly this will be dependent on the type of industry you are in. If you’re in say gig work, and you just get paid from a platform or something like that. You do work you get paid from a platform and you just get to record it as income when you get paid say from some kind of online platform.
04:54
And you don’t have to invoice anyone. You don’t have to create sales receipts and all your bills are going to be just basically electronic transfers automatic payments, well, then then you could step even if a way further away from a cash basis system and probably still be able to do okay with that, you know, fulfill your needs with the accounting system, meaning a cash basis system would usually mean that we create a sales receipt, because that means that we got paid at the same time the work is done. But if you’re just depending on the bank, to create your financial statements, you could wait to get the deposit for the from the customer, for example.
05:32
And instead of recording the deposit here, you can allow the deposit to feed in from the bank feeds. And because the deposits are electronic transfers from something like a something like a platform, it’ll even have something in the memo section, which will typically give you the name like Amazon or something like that, whoever’s paying you to get the money, and then you can create your books from the bank statement. Now, in that instance, then you’re not actually doing a double, you’re not actually kind of doing the full service, bookkeeping, you’re kind of using the bank to create the books.
06:06
And that will mean that the bank reconciliation process, although it’s something you should still do, will be fairly basic type of process, because you’re not comparing two sets of books, you’re actually just using the bank to to create your books. Whereas if you’re using a full service kind of accounting system, where you’re doing the books on your side, and double checking to the bank, the reason that’s so important, oftentimes, even in a cash basis business, is because now you got the double verification. So if I’m not dependent on the on the bank, meaning I’m doing my own books, possibly because I want an added level of internal control added level security, or because my business requires me to do it a double double.
06:49
And you know, the interest on my side, either because I have cash receipts that I’m getting at the sale at the check register, or something like that, or I have to invoice clients in that instance, then then what’s going to happen is I’m going to enter the transactions on my side, record the transactions into the books. And then even if I have the bank feeds that come in, the bank feeds are going to be used to double check to my deposits. So I’m going to double check the bank feeds to my deposits, which is basically doing the bank reconciliation process.
07:20
For me, that’s the process of bank reconciliation. So in other words, if you’re using the bank feeds to create your books, then your bank reconciliation will be very easy, you don’t have as big an internal control, you’re more dependent on the bank for the creation of your books. If on the other hand, you are entering the information into your system separate from the bank, which is the normal kind of accounting process, generally, then the bank feeds will be used, at least with some transactions, to verify that you have entered information into the system.
07:54
And in that case, the bank feeds are being used more as a tool to reconcile that’s part of the reconciliation process. That’s what we do in the reconciliation process. So in a normal reconciliation process, if we didn’t have the bank feeds, or even if we do, we’re still going to basically go through this process of taking the bank statement. So here’s a bank statement, for example. And we’re going to be comparing that to what is on our books. Normally, if we enter the data into our books separately from the bank, then the end date, this amount here, the 66 to 41, as of January 31, will not be the same as what is on the QuickBooks system.
08:34
So if I go into QuickBooks, I wouldn’t have that same amount here, even though it’s on the same date, almost always, because there’s going to be outstanding checks and outstanding deposits checks that we have written, for example, that have not cleared, or deposits that we have entered, that have not gone through the system yet. Now the more that things become electronic, the less of those transactions we’re going to have. Because for example, if I write a cheque to somebody, then I have to write the check, it’s got I know about it. So I recorded it on my side, in my books, it’s got to be sent to the other person or given to the other person, they have to then cash it at their bank, their bank has to talk to our bank before it actually clears our bank.
09:15
So there’s a pretty significant lag in the time difference between writing a check and the caching of the check and it being given to our bank. So we know about it, electronic transfers should happen a lot more instantly. So if you’re if your whole business is electronic transfers, then you’re going to have less kind of lag between the transactions we entered to to when they clear although there’s still going to be some lag, typically. So that’s when you got this difference between the bank reconciliation process. If you look at an actual bank, the other kind of thing that’s that people often think of as a bank reconciliation is the act of reconcile lean, which is different.
09:54
So if I was to say, go to the banking here, and I will say I’m going to reconcile and and We enter the data in order to reconcile here. And then we start ticking and tying off the data. That is not the bank reconciliation, that is the process of bank reconciliation bank reconcile lien. And it’s a crucial process, because that again, is what you’re doing is you’re ticking and tying off your books to the banks books. And if you have two sets of books that now you have matched together,
10:24
you have an outside control and outside double check from the bank, to your books, that everything has been entered properly. So it’s going to be a huge internal control. And again, the bank feeds can help with that, because the bank feeds will help you to kind of automatically check things off if you’re matching the bank feeds to what you have entered in your book. So in your book, so if you look at what will actually be created, and this will not be the end result that we will make. But this is just an example of a bank reconciliation.
10:52
This is a detail bank reconciliation, where that where the they have the full thing where they have the beginning balance here, that’s that’s not really what we’re focused on. These are the cleared transactions, the ones that cleared the bank, and they cleared, our books will be marked off as cleared. And then we’ve got the cleared balance, this is really where the bank reconciliation kind of starts, that cleared balance. And then these are the checks that have not been cleared. This is the reconciliation time, what is on our books, to what is on the bank statement.
11:24
So we’re gonna, we’re gonna say there’s, there’s the cleared balance, we’ve got the difference between our books, and the bank statement being these checks, these checks which have been written, but in this case, they were written like at the end of the month, for example, and it hadn’t yet cleared the the bank. So that’s why the bank doesn’t have them on their books yet. And we have this deposit that has not cleared. So we have a difference between the bank and the book balance due to those differences. And that’s going to be that’s what the bank reconciliations is.
11:52
So this is, in essence, the bank reconciliation, right this is this is declared balance that would be on the bank. And these are the transactions that we have not yet that we have entered that the bank does not yet have. So this is going to be then the balance that is going to be on the book or the register. So if you were to ask like, like an auditor, or someone won the bank reconciliation, they’re not going to they’re not going to say, hey, they’re not going to prove that you did a bank reconciliation by the fact that did you do this process here? Did you go through the process of doing this and reconciling like that and taking time everything off to the bank, you know, that’s important to do.
12:29
But that’s reconciled lien, the proof that you’ve done that the reconciliation is going to be it’s going to be this item that says, hey, here’s the bank balance, here’s my balance as of the same date, here are the outstanding items. And then if you list the outstanding items, you can say, okay, are those legitimate, outstanding items are going to go double check that those items have cleared. And again, your goal here is not really to double check that these items have cleared, although that could be important, because if the if there’s a problem with them, then you want to look into that.
13:00
The point is that if you can reconcile exactly, between our books and the bank books, that not only that these are legitimate, and you determined that these are legitimate, which you can kind of double check, then you can basically say, well, that must mean that all the other transactions that have been put in place were put in place properly. In other words, there’s no way I could have taken time out. Unless both of the books were exactly right, in order in order for the reconciliation to be correct.
13:27
So that gives a double verification of all the transactions that we entered into the cash account. And if we could double check all the transactions in the cash account, then we’ve got a huge internal control not only over the ending balance of cash, but because cash the other side of every cash transaction impacts. Each cycle is is interwoven with cash, that will also check the vendor cycle, the customer cycle and the employee cycle. So so just the the bank reconciliations generally a really important thing to do. If you’re if you’re creating your books from the bank, with bank feeds, the bank reconciliation will be easy because you won’t have these reconciliation kind of items here.
14:08
Because you will not have entered the transactions on your side, we wouldn’t have entered the transactions, if we’re depending on the bank to record the transaction. So this deposit, for example, I wouldn’t have recorded that because it because it hadn’t yet cleared the bank. And I wouldn’t record it until it cleared the bank, if I’m dependent on the bank to create my books.
14:28
But you can see how it would be a better internal control if I was to record it on my books first. And then have it clear the bank to double check that the bank is is double checking the fact that I got that deposit that would be in better internal control. But if you’re in if you’re in a certain type of business, you may not need that internal control, it may take more time than it’s worth. So you might just say I’m just going to depend on the bank to create my books, which makes the bank reconciliation very easy, because there is no reconciliation difference because you got your information directly from the books but In any deviation,
15:01
where you’re where you’re recording on your books versus the bank, which is normal, most enlarger type of business, most businesses that have an accrual component are going to need to do that. Then the bank reconciliation is still present, whether you use bank feeds or not, although the bank feeds might be used as a double check to help you to check a few things off as you go through the bank reconciliation process. Okay, so that’s, that’s the mythbusting. Next time we’re going to go into the bank reconciliation in more detail