A client recently asked me why his bank reconciliation needed to be prepared, and we went over how important it is to make sure all income and all expenses were accurately reflected in his accounting records. He was certain that everything was included, and that the bank reconciliations were done. When I reviewed his QuickBooks file, it seemed that he had missed deposits and payments, which would result in an inaccurate income tax return. So, we had to start from scratch to make sure his accounting data included everything on the bank statements. So, why is it important to know how to use QuickBooks Online to prepare bank reconciliations? Read on, or watch the video.
In this video, I show you exactly…
How to use QuickBooks Online to Prepare Bank Reconciliations
Why are bank reconciliations so important?
A business needs to make sure of the following:
- All valid deductions have been recorded, such as bank charges and other items that cleared the bank statement and haven’t been recorded, such as automatic bill payments and debit card activity
- The bank has recorded all the deposits you made – sometimes deposits go missing
- There aren’t any unauthorized deductions from your account, such as a forged check, a bank error, or a transfer made by someone who has gained access to your account
Cash Flow Monitoring and old items
To monitor your cash flow, you need to know that your books are up to date, and a bank reconciliation is a way to make sure it is. Some businesses reconcile their bank accounts weekly or even daily, if they are operating with minimal cash on hand. You should make sure you reconcile your cash every time you get a bank statement.
It’s also important to uncover any old outstanding checks or deposits that need to be researched. You don’t want to have duplicate income or expenses incorrectly recorded in your records and on your tax returns.
Differences between your book balance and the bank balance
A bank reconciliation identifies differences between your book balance and the bank balance, and are usually due to any of the following:
- Checks issued which have not cleared the bank
- Deposits you made at the end of the month that the bank didn’t post yet
- Unrecorded bank charges
- Interest income
- NSF Checks (rejected deposits, because the customer didn’t have enough funds in their account to cover the check)
- Errors – either you or the bank may have recorded a check or deposit incorrectly (or not at all)
Please feel free to reach out if you have any questions, I am on the web at urbizmatters.com, email me at Laura@LS-CPA.com or call 516-532-4839.