This is the first article in a series of five: Common, Costly Mistakes Made by QuickBooks Users.
How can not reconciling bank accounts, within 30 days of receipt of the bank statement, be compared to throwing money away? Let me count the ways:
You might never know the bank made a mistake. You typically have up to 30 days after receipt of the bank statement to dispute a transaction. I’ve seen more than a few bank errors over the years. Most recently, one of my clients wrote a check and the bank erroneously cleared it two times. The check was $2,500.00. Ouch! Fortunately, his bookkeeper caught the error and the bank refunded the money. Unfortunately, bank employees are human, and we all make mistakes.
You might never know someone looted your bank account.Or even worse, you might find out after all your money is gone. One of the most common ways criminals “cash in” on identity theft is stealing money from victims’ checking accounts. It is wise, especially in these times, to look at your account online during the month and reconcile at the end of the month. You want to discover fraud as soon as possible and contact your bank immediately. They might suggest closing the account and opening a new one that the criminal does not have access to. There are also unscrupulous companies out there that will continue to debit your account monthly even after you discontinue their services. We have all heard of the numerous scams, so just keep in mind, it can happen to you.
You might never know an employee made a mistake. Keying error 15215 quickbooks 2012 can be costly for several reasons. I have seen deposits from a bank loan keyed as income. If the error is not caught, you could pay income taxes on, say, a $20,000 loan you got from the bank to purchase equipment. Very costly mistake. This mistake might not be caught by every person who reconciles. It is important that either someone knowledgeable in accounting reconcile your bank statements or the business owner review monthly financial statements (at least the Profit & Loss). When owners deposit personal funds in the business to keep it afloat, QuickBooks operators might mistakenly key the deposit as income. Also causing income (and income tax) to be over stated. I have also seen, many times, where checks were not keyed in QuickBooks. These checks are usually tax deductible expenses. Reconciling the bank statement will definitely catch this mistake. The list goes on, but you have the idea.
You might pay more for tax preparation. When you give your tax preparer incorrect QuickBooks information, you will probably pay more to have it corrected than if you had paid to have it done right in the first place. This is not just a year end income tax consideration. For those of you who make estimated tax payments, those estimates are only as good as the financial information they are based on. In other words, you could over pay the estimate based on QuickBooks errors that overstate income or understate expenses.
Follow the steps below to timely reconcile your bank statements in QuickBooks.
1) Key all deposits, checks, ATM withdrawals, and any other transactions during the month, as they occur. For this writing we will assume this is for the month of June. I advise not to key all the transactions directly from a bank statement, you might not detect fraud, bank errors, or employee errors. If you download the transactions from your bank, review the transactions to ensure they were recorded correctly by the bank. Or, again, you might not detect fraud, bank errors or employee errors. Also make sure that they were assigned to the correct accounts in QuickBooks.
2) Now for the timely part, during the first week or two of July, reconcile June’s bank statement in QuickBooks. That is, go to Banking, Reconcile, and choose the bank statement you are about to reconcile.
3) Compare the bank statement to the reconciliation screen and click each transaction that appears on the bank statement. If all goes well, the Difference (in the lower right hand corner) will be zero. You can then click the Reconcile Now button and you have “timely reconciled your bank statements in QuickBooks!
4) Review all the uncleared Checks and Payments and Deposits and Other Credits still in the QuickBooks Bank Reconciliation screen. Every item in this screen is uncleared after the reconciliation is complete. (Tip: you must enter an ending balance to get back into the reconciliation screen, just put any number in so you can review uncleared transactions). Are there old uncleared items? The deposits should clear as soon as you take them to the bank. If there are old deposits still showing on this screen. For example, if a deposit was made on June 7th and it is still showing as “uncleared” in QuickBooks after the June bank statement is reconciled, there is a problem. Research it, that is, answer the question: Why has that deposit not cleared? Maybe it was keyed in QuickBooks twice and cleared once. Also, if checks are still “uncleared” when they were written months ago, this might signify a problem in need of research. Or a call to the check recipient.
Look for the following four articles in the series: Five Common, Costly Mistakes Made by QuickBooks Users.
This article was written by Barbara L. Joyce, owner of Custom Professional Accounting. We are the “teaching” accountants and want you to understand your accounting to help you make informed decisions. Certified QuickBooks ProAdvisor on staff to train you on QuickBooks, or to do it all for you!