How to Reconcile Your Bookkeeping So Your Finances Aren't a Mess - Andi Smiles (2024)

Are you wondering if you’ve been doing your bookkeeping correctly? Maybe you’re DESPERATE to know why your bookkeeping numbers aren’t adding up. There’s an easy way to answer your questions.

The answer is: Reconciliation.

Most small business owners are intimidated by reconciliation, so they skip it. But skipping this crucial process means that you run the risk of having inaccurate books and lingering mistakes.

I’m teaching you everything you need to know about reconciling your bookkeeping: what it is, why you need to do it, and most importantly, HOW to reconcile your bookkeeping.

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What is Reconciliation (3:22)

It’s a process where you check to make sure your bookkeeping matches your bank statements. You review the transaction in your bookkeeping and you cross-reference them with your bank statement.

It’s not as awful as it sounds… and it’s good for your books! Because you create a system of checks and balances in your records and ensure your accounting and your bank statements are congruent.

An excellent way to think about reconciliation is to go back to the good old days of when we had checkbooks. Back then, we wrote everything down in the check register with a running total and once a month checked to make sure your checkbook register matched the bank statement. It was called “balancing your checkbook.” Super old school, I know.

In the digital world, reconciliation is basically balancing your online checkbook.

Want to have the neatest, most organized books in the land? Reconcile your bookkeeping monthly. You should reconcile your checking account, your business savings account, your credit card statements, and for extra credit, your assets and liability accounts.

Why We Reconcile (8:41)

Reconciliation ensures that your books are accurate and that there are no mistakes. You want to catch errors and address them sooner than later because, if left unchecked, errors will spiral out of control!

Sometimes transactions go missing. You forget to enter them in. Maybe your bank never downloaded them. You won’t know until you reconcile your accounts. Reconciliation will prevent you from underreporting your income and help you catch missing expenses that are valuable tax write-offs.

It’s crucial that the income we report is accurate. We don’t want to under or over report anything. The only way to prevent that is by checking for duplicate or missing transactions. It’s totally normal to make mistakes in your bookkeeping. Reconciliation is a tool that helps us catch your mistakes.

Reconciliation also shows you what’s happening with your finances. You may notice that certain business expenses are costing you way too much. You may see that a client didn’t pay an invoice in full. Reconciliation offers you a sense of relief and TRUST that you’re numbers are accurate.

Are you convinced that you need to start reconciling your business finances? Let’s get started!

Before You Start (14:25)

Before you being, you need your bank and credit card statements with your opening and closing balances for the statement period.

If you’re new to reconciliation, it’s easier to start with a physical document compared to working with a PDF. As you get better at reconciliation, you’ll be able to use a PDF statement.

Then you’ll need:

• ruler
• pen
• highlighter

You’re going to use all three to go over every line in your bank statements. Some bank statements can be 50 pages long, so it’s best to use a ruler and take it one line at a time. Use the pen to cross-reference and check off all the transactions that match. If you have anything missing, highlight the missing transactions so you can return to them later.

How to Reconcile (20:55)

Tune in at 20:55 so you can watch the reconciliation demo I did inQuickbooks Online.

Let’s go over the steps that’ll help you get started with reconciliation. From here, you’ll know exactly how to reconcile your income.

Step #1: Get out your bank statement and find your opening and closing balance.

Get yourself prepared by having everything you need out in front of you.

Step #2: Make sure all transactions have been added to your register.

These are all your transactions that have occurred in a particular month. People forget that they have to categorize and add all downloaded transactions BEFORE they start to reconcile. If you don’t, these transactions get stuck in “expense limbo” and they aren’t actually in your bookkeeping program. Watch the video where I show you how to add these transactions inQuickbooks.

Step #3: Open reconciliation window.

Now we’re really going to get into the reconciliation process! There are two ways to get started within Quickbooks. There is a big green button labeled RECONCILE that you can click on, or you can click on the gear icon, hover over the word TOOLS, and then choose RECONCILE.

Step #4: Choose the account you want to reconcile.

There is a menu item that’s labeled ACCOUNTS, and you should hover your cursor over that. A drop-down menu will appear, and choose whatever account that you want to reconcile.

Step #5: Make sure your opening balance on statements matches your beginning balance.

This is an important step! If your opening balance doesn’t match your bank statement, then there is 0% chance your reconciliation will work out correctly. It has to match the bank statement.

Step #6: Enter the ending balance from the statement and the ending statement date.

Using your bank statement, find the ending balance and the statement closing date. Then press “start reconciling.” That’s all the setup you need to get yourself to reconcile.

Step #7: Match the transactions in the program to your bank statement.

This step will take the longest. Match the transactions in the program to what’s on your statement. Look at your statement and go line by line, checking off both places that the transactions are seen. Every time there’s a transaction on your bank statement and in Quickbooks, press the little check mark in Quickbooks AND check the transactions off on your statement.

Eventually, once all of the transactions on the statement had been paired with transactions and Quickbooks, you’ve finished your reconciliation.

Troubleshooting the Steps (30:57)

If you find that your bank statement and Quickbooks doesn’t match, what happens next?

Step #1: Check that the opening balance matches the bank statement.

The first troubleshooting step is to check that your beginning balance matches the bank statement. This is something that will definitely throw off your reconciliation. You want to double check because, even if it’s off by 3 cents, it can cause major problems.

The first time you connect your bank accounts, usually, Quickbooks will only import up to 90 days back. Sometimes it’ll force an opening balance based on what your bank’s balance was 90 days ago. Make sure that QuickBooks hasn’t forced in an opening balance that into the register because this will throw off your opening balance.

Step #2: Check that the closing balance matches the bank statement.

I’ll be honest- sometimes I’ve reconciled an account 3 different times and couldn’t figure out what was wrong… until I finally noticed that I typed in the ending balance incorrectly. Before you get all caught up in what’s wrong with your reconciliation, check your ending balance. There could be some number that’s off or an inverse digit or something like that.

Step #3: Check that the closing date matches the bank statement.

Every bank will have its own closing date so double check your statement. Quickbooks will only show you the transactions in the date range that you have selected. If the closing balance in Quickbooks isn’t actually the same closing balance at your bank statements, you’re not going to see all the transactons. This is a big reason why your reconciliation process will go wrong. You can watch the demo for this step at 34:15 in the video.

Step #4: Scroll to the bottom and look for a transaction that equals the discrepancy.

Sometimes a transaction will appear in QuickBooks on the last day of the month, but in your bank, it doesn’t appear until the first day of the month. That means that it actually won’t show up on the statement but it will appear in Quickbooks. Unchecking that one transaction can save your reconciliation. I show you how to do this step starting at 36:43.

Step #5: Uncheck all and redo the reconciliation.

In some cases, you simply missed something, and you have to go back and redo it. It’s a bummer, but sometimes you need to start over to figure out what’s gone wrong.

Reconciliation is one of the five bookkeeping tasks in my opinion that are absolutely essential to your business finances. These five tasks are the bare minimum that you should do in your business bookkeeping.

I have mini training called Essential Bookkeeping Tasks for Your Business. It goes over the other four essential bookkeeping tasks and covers what these tasks are, why you need to do them, how to do them, and how to make that process easier for yourself in the future.

Take a peek at all the details so that you can make sure you’re not missing any bookkeeping must-dos and get your finances in order once and for all!