Explained: What Is Reconciling In QuickBooks?

Managing finances is a crucial aspect of running a business effectively, and accurate bookkeeping is essential for maintaining financial stability. QuickBooks, a popular accounting software, offers various tools and features to help businesses streamline their financial processes. One such critical feature is the ability to reconcile accounts.

In this article, we will explore the concept of reconciling in QuickBooks, how it works, when to reconcile, and the step-by-step process for reconciling accounts in both QuickBooks Online and QuickBooks Desktop.

Reconciling in QuickBooks

Reconciling in QuickBooks refers to the process of matching and verifying the transactions recorded in your accounting software with the transactions listed on your bank or credit card statements. It ensures that your financial records are accurate and complete, minimizing errors and discrepancies.

When you reconcile your accounts, you compare the transactions recorded in QuickBooks with the transactions provided by your financial institution. This includes verifying the amounts, dates, and payees of each transaction as well as checking each journal entry for accuracy. The goal is to identify any discrepancies and resolve them by either correcting the records in QuickBooks or contacting the bank to rectify any errors at their end.

How Does It Work?

The reconciliation process in QuickBooks is relatively straightforward. You start by selecting the account you want to reconcile, such as a bank account or a credit card account. QuickBooks will display a list of transactions recorded in the software, typically for a specific period. This step can be easily performed within QuickBooks or other accounting apps. You compare this list with the transactions on your bank or credit card statement.

As you review each transaction, you mark it as cleared in QuickBooks once you confirm that it matches the corresponding transaction on your statement. QuickBooks provides a reconciliation window where you can enter the ending balance and any additional adjustments required to balance the account. 

Once you have reviewed and marked all the transactions, QuickBooks calculates the difference between the statement balance and the balance in your accounting software. Ideally, this difference should be zero, indicating a successful reconciliation. If there is a discrepancy, you will need to investigate and correct it to ensure accurate financial records.

Why Is Bank Reconciliation in QuickBooks Important?

Ensures Financial Accuracy

Bank reconciliation in QuickBooks helps ensure the accuracy of your financial records. It can uncover any discrepancies between your book and bank records, such as double entries, missed entries, or errors in recording transactions. Without bank reconciliation, these discrepancies, including those related to undeposited funds, could lead to inaccurate financial statements, causing you to overstate or understate your financial position.

Detects Fraud and Unauthorized Transactions

Bank reconciliation is also an effective way to detect fraud and unauthorized transactions. By consistently reconciling your bank records with your QuickBooks records, you can quickly identify any irregularities. This could be anything from an unauthorized withdrawal, an overcharge by a supplier, or even fraudulent activity within your own company. By spotting these early, you can take corrective action before it significantly affects your business.

Enhances Cash Flow Management

Regular bank reconciliation in QuickBooks provides up-to-date information about your cash position. This can help you make informed business decisions, such as when to invest in new assets, when to cut costs, or whether you need to chase overdue customer payments.

Assists in Auditing and Tax Filing

Accurate financial records are not just useful for internal decision-making. They are also essential during audits and when filing tax returns. Bank reconciliation in QuickBooks ensures that your books match your bank records. This can save a significant amount of time during an audit and reduce the likelihood of errors in your tax filing, potentially preventing penalties or fines.

Facilitates Better Financial Planning

Regular bank reconciliation provides a clearer picture of your company’s financial health. It can help you identify trends, like recurrent late payments from a particular customer or regular overspending in certain areas. With such insight, you can make more informed decisions about future business planning and strategy.

When Should You Reconcile Your Bank Accounts in QuickBooks?

Deciding when to reconcile your bank accounts in QuickBooks can depend on several factors, such as the size of your business, the volume of transactions, and the nature of your operations. Here are some general recommendations.

• Daily Reconciliation: For businesses with high transaction volumes, such as retail stores or restaurants, daily bank reconciliation may be advisable. This allows you to promptly catch and correct any discrepancies. If not resolved, these could quickly accumulate and create significant accounting issues.
• Weekly Reconciliation: If your business has moderate transaction volumes, weekly reconciliation could be suitable. Examples of businesses that might fit this category include small service providers, freelance professionals, or small online retailers.
• Monthly Reconciliation: At a minimum, all businesses should perform bank reconciliation at least once a month. This coincides with the typical closing of a business’s financial month and the issuing of bank statements. Monthly reconciliation helps ensure that your monthly financial reports accurately reflect your business’s financial status. This is critical for businesses such as small manufacturers, startups, or businesses with lower transaction volumes.
• Special Situations: In some situations, you may want to reconcile more frequently, even if your transaction volume is not particularly high. For example, if you suspect fraudulent activity or if you’ve had past issues with financial errors, more frequent reconciliation can help you spot and address these problems early.

Each business should balance the need for accurate record-keeping with the practical considerations of time and resources needed for bank reconciliation. Regular bank reconciliation, whether daily, weekly, or monthly, is a good practice that can contribute to better financial management and decision-making.

How to reconcile your accounts in QuickBooks online?

Step 1: Verify Your Opening Balance

Before starting the reconciliation process, ensure that your QuickBooks opening balance aligns with the opening balance of your real bank account. This is especially crucial if you are conducting reconciliation for the first time.

Tip: To simplify this process, connect your bank and credit card accounts to QuickBooks for automatic download of transactions, which will also set the opening balance for you. However, if you’ve missed setting up an opening balance, don’t worry; you can always enter it manually later.

Step 2: Initiate the Reconciliation Process

After getting your monthly bank or credit card statement, you’re ready to begin reconciliation. It’s essential to reconcile one statement at a time if you’re reconciling multiple months, starting with the oldest statement.

• If you’ve linked your accounts to QuickBooks for online banking, ensure all downloaded transactions are matched and categorized appropriately.
• Next, navigate to Settings and select Reconcile. For first-time users, click on Get Started. 
• From the drop-down menu under Account, choose the account you wish to reconcile. Be sure it matches the one on your statement. However, if you see a message regarding a previous reconciliation, opt for “We can help you fix it.” You’ll need to address this before proceeding.
• Review your Beginning balance to confirm it matches the balance on your statement. And if it doesn’t match, enter your Ending balance and Ending date from your statement. Some banks may refer to this as a “new balance” or “closing balance.”
• Lastly, take a look at the Last statement ending date, which signifies the end date of your previous reconciliation. Your current bank statement should start the day after. 
• When you’re ready, select Start reconciling.

Step 3: Compare Your Bank Statement with QuickBooks

Now, you need to compare the transactions listed on your statement with those recorded in QuickBooks. Make sure to cross-verify every transaction. It’s crucial to ensure the correct dates and transactions are reflected in QuickBooks for an accurate match.

Depending on whether your account is connected to online banking, follow the specific instructions:

If your accounts are connected to online banking, the reconciliation process should be straightforward since all your transaction information comes directly from your bank. In some instances, your accounts might already be balanced. Follow these steps:

Reconciling Accounts Connected to Online Banking

When your bank accounts are synchronized with online banking, reconciling is often straightforward as the bank feeds transaction data directly into QuickBooks. Follow these instructions:

• Begin with the initial transaction listed on your bank statement.
• Find the identical transaction within QuickBooks’ Reconciliation window.
• Verify that the transactions on your statement and QuickBooks match. If they do, mark them as reconciled by ticking the checkbox next to the transaction in QuickBooks. Note that transactions added or matched from online banking are usually pre-selected.
• If you see a transaction in QuickBooks that isn’t on your statement, refrain from checking it.
• Ensure every transaction on your bank statement corresponds to a transaction in QuickBooks.

Tip: If you have a transaction that you’re sure matches one in your statement, but some details (like the payee) are slightly different, you can modify these details in QuickBooks by clicking on the transaction to expand the view, then selecting Edit.

• After reviewing all transactions, your statement balance and the QuickBooks balance should be identical (i.e., a difference of $0.00). If they match, click on Finish now.
• If the difference isn’t zero, or a transaction that should be in QuickBooks is missing, consider looking into methods to address common reconciliation issues.

Reconciling Accounts Not Linked to Online Banking

If your bank accounts are not integrated with online banking, the following steps will guide you through the reconciliation process:

• Begin with the first transaction detailed on your bank statement.
• Locate the corresponding transaction in the Reconciliation window in QuickBooks.
• Cross-check the two transactions. If they are the same, tick the checkbox next to the QuickBooks transaction to reconcile it.
• If there’s a transaction in QuickBooks that is absent from your statement, don’t check it.
• Make sure every transaction in your bank statement is recorded and matches in QuickBooks.

• By the end of your review, your bank statement and QuickBooks should indicate the same balance (a difference of $0.00). If they do, click Finish now.
• If there is a non-zero difference or a transaction is missing from QuickBooks that should be there, consider investigating and rectifying common reconciliation issues.

Next Steps: Review Past Reconciliations

Once you’ve completed the reconciliation, you should review your past reconciliations to validate your work.

To do this:

• Go to Bookkeeping or Accounting, then select Reconcile. 
• Next, click on History by account. 
• Use the dropdown menus to choose the account and date range. If you need to share your reconciliation reports, you have the option to print or export them.

How to reconcile your accounts on QuickBooks desktop?

Step 1: Verify Your Opening Balance

Before initiating the reconciliation process, it’s important to take a backup of your company file.

In case you are reconciling an account for the first time, it’s necessary to check the opening balance.

Step 2: Prepare for the Reconciliation Process

Ensure all transactions for the specific period of the bank statement you aim to reconcile are recorded. 

If any transactions are yet to be cleared by your bank and are not reflected on your statement, delay their entry until they are cleared.

Step 3: Begin the Reconciliation

You can start reconciling as soon as you have your bank statement.

If you’re going through several months of statements, begin with the oldest and proceed sequentially, month by month.

Keep in mind that if you are reconciling a Merchant or Payments account and QuickBooks Desktop notices you’re not signed in, it will prompt you to do so. This is to guarantee that your account is appropriately linked to a valid company ID.

• Navigate to the Banking menu, then choose Reconcile. 
• In the Account field, select the bank or credit card account you wish to reconcile. 
• The Statement Date is automatically filled in, usually 30 or 31 days after the date of the previous statement. Adjust it as necessary to align with your bank statement.
• QuickBooks will automatically enter the Beginning Balance based on the ending balance from your last reconciliation. 
• Input the Ending Balance and the Service Charge and Interest Earned according to your bank statement. 
• Make sure not to enter any charges that are already recorded in QuickBooks. 
• After verifying all the information, select Continue or OK.

If your beginning balance doesn’t align with your statement, don’t panic. You can use tools to help you locate discrepancies and fix your opening balance and beginning balance. If needed, you can start over by selecting Undo Last Reconciliation.

Step 4: Compare Your Bank Statement and QuickBooks

Reconciliation involves comparing the transaction list on your bank statement with that in QuickBooks, ensuring the dates and transactions are accurate. This will confirm that all transactions have been accounted for in QuickBooks.

Before you begin, follow these steps to make the reconciliation process easy:

• Filter the transactions and only display those within the period of the statement you are working on. Choose ‘Hide transactions after the statement’s end date.
• When working with a credit card account, the categories are Charges and Cash Advances (for purchases) and Payments and Credits (which are your payments to the credit card company). Concentrate on each category one by one.
• If your reconciliation pertains to an online banking account, choose ‘Matched.’ Following that, input the Statement Ending Date from your bank statement. This action will automatically select the transactions that QuickBooks has downloaded and matched.

Note: In the register, matched transactions are indicated by a lightning bolt symbol. After you reconcile it, the lightning bolt symbol will be replaced by a checkmark.

• If you wish to order the list, click on the header or title of a column.
• If QuickBooks has more transactions than your bank statement, it might be necessary to rearrange the list.

Match Your Transactions

1. Begin with the first entry on your bank statement.
2. Locate the corresponding transaction within QuickBooks’ Reconciliation interface.
3. Compare the two entries. If they align, tick the checkbox in the corresponding column to mark it as reconciled.
4. Compare all transactions from your statement with those present in QuickBooks. When transactions are added or cleared during reconciliation, the Cleared Balance value decreases. This value increases when deposits or other credits are added or cleared.
5. If a transaction is present in QuickBooks but not on your statement, avoid marking it as reconciled. For a quick check of compatibility, you can:
   • View the total number and value of transactions you’ve added to the reconciliation in the ‘Items you’ve marked cleared’ section. Compare this with the summary provided by many banks on their statements to identify any potential missing transactions.
   • If a transaction needs editing or you require more information, select the transaction and click on ‘Go To’ or simply double-click it.
   • If you need to amend information entered in “Step 3: Start your Reconciliation”, click on ‘Modify’. The associated service charges, interest, and ending balance details are displayed in the adjoining section.
6. Once you’ve completed the reconciliation process, the difference between your bank statement and QuickBooks should be $0.00. If that’s the case, click on ‘Reconcile now.’

Next Steps: Review the Reconciliation

Upon completion, you can view or print the Reconciliation report.

For future reviews:

• Navigate to the Reports menu, then choose Reports Center. 
• Access and open an old Reconciliation report by searching for it.
• Choose the reconciled account, then either Summary, Detail, or Both. Your task is now complete.

Common Issues and Troubleshooting Steps

Discrepancies Between QuickBooks and Bank Statement Balances

Problem: The ending balance in QuickBooks doesn’t match your bank statement.

Solution: This discrepancy can occur due to transactions that haven’t cleared, duplicate transactions, or errors in transaction amounts. Review the transactions listed in QuickBooks and on your bank statement. Look out for transactions that may have been duplicated, omitted, or entered incorrectly.

Old or Uncleared Transactions

Problem: Transactions that date back several months are still listed as “uncleared” in QuickBooks.

Solution: It’s possible that some transactions were missed during previous reconciliations, or they were recorded in QuickBooks but never cleared at the bank. Review these transactions to ensure they occur and are correctly recorded. If they never cleared at the bank, it might be necessary to contact your bank to inquire about the transaction status.

Modified, Deleted, or Added Transactions

Problem: The opening balance of your current reconciliation doesn’t match the ending balance of the previous reconciliation.

Solution: This issue can occur if transactions from a previous reconciliation were modified, deleted, or added after the reconciliation was completed. QuickBooks Online provides a “Reconciliation Discrepancy” report that can help identify these transactions. Review this report and correct the discrepancies before proceeding with the reconciliation.

Incorrect Opening Balance

Problem: The opening balance in QuickBooks does not match the opening balance on your bank statement.

Solution: This issue often occurs when you’re reconciling an account for the first time. Review the initial setup of your bank account in QuickBooks to ensure the opening balance was entered correctly. If the discrepancy persists, it might be best to consult with an accounting professional.

Tips for Successful Bank Reconciliation

To prevent future discrepancies and make the reconciliation process easier, follow these tips:

• Regular Reconciliations: Regularly reconcile your bank account (monthly is recommended) to catch errors or discrepancies early.
• Review Transactions: Regularly review your bank transactions and compare them with your QuickBooks transactions.
• Avoid Changes: After you’ve reconciled an account, avoid making changes to the reconciled transactions. If changes are necessary, ensure they are reflected in your reconciliation.
• Utilize Reports: Make good use of QuickBooks’ reporting capabilities. Reports such as the Reconciliation Discrepancy Report and the Previous Reconciliation Report can be useful tools in identifying and resolving reconciliation issues.
• Keep Records: Good record-keeping goes a long way toward ensuring accurate reconciliations. Always retain copies of bank statements, checks, deposit slips, and other relevant financial documents.

By following these troubleshooting tips and best practices, you can ensure a smoother bank reconciliation process in QuickBooks, ultimately helping you maintain accurate financial records.

The Bottom Line

Reconciling accounts in QuickBooks is a crucial process that ensures the accuracy of financial records, detects fraud, improves cash flow management, aids in auditing and tax filing, and facilitates better financial planning. By following the reconciliation process and best practices, businesses can maintain accurate and reliable financial data for informed decision-making.