I’ve had clients ask me, “Why do I need to reconcile bank statements in QBO? The bank feed pulls in all the transactions, so I know it’s accurate.” Well, sorry folks, but skipping monthly bank statement reconciliation is not an option.
Why do we reconcile bank statements in the first place? To ensure that all the transactions in the register are legitimate. In the old days, before online banking, all transactions were entered by hand. Typos and errors can occur such as the wrong date (or year!), the wrong amount, the wrong payee - anything is possible. Fast forward to today’s world where bank errors are rare, but they do occur. I have one client for whom an ATM deposit was mistakenly typed in at $600 over the amount of the batch of checks deposited, and the bank never noticed. We had to contact them to alert the bank of the error. We only discovered this error when we noticed the deposit amount on the bank statement did not match the deposit amount in QuickBooks. Hurray for bank rec-ing (hey, I invented a new verb)!
So do bank feeds have errors? Probably not. I would not expect to see transposition errors, date errors, or vendor name errors in bank feed data. Perhaps you now think I’ve just made the case for not reconciling; well, think again!
Here’s where bank feeds can go wrong – I call it the hiccups. Sometimes a bank feed will get the hiccups, and a day, or an hour, will be skipped. Or duplicated. You thought you already posted that restaurant expense, but there it is in the bank feed, so you think “I must have imagined I already posted it,” and so you post it again, creating a duplicate expense. Doubt not your sanity, fair reader – your bank feed had a hiccup! Performing a bank rec will find those duplicates and/or missing transactions.
Accounts You Need to Reconcile
So which accounts should be reconciled monthly? Basically, almost any account which has a register for which you can click the “Reconcile” button.
- Credit Cards
- PayPal Bank
- Loans, Lines of Credit, Mortgages
Why You Should Reconcile Bank Statements
- It is a bookkeeping Best Practice.
- Find missing transactions
- Find duplicate transactions
- Find transactions posted at the wrong amount
- Ensures accuracy of bookkeeping data and reports
- Fraud prevention – find checks which were illicitly altered by a fraudster
Yes, QBO and Xero and the like make our lives easier. But we cannot be lulled into complacency such that we don’t follow standard bookkeeping best practices. And here’s a zinger: I won’t use or recommend the new QuickBooks Self Employed version of QuickBooks Online. Why not? Because they don’t offer a bank reconciliation feature! This goes against everything that professional bookkeepers and accountants are trained to do, and I’m frankly shocked, that Intuit has allowed this product to go to market without a bank rec feature. It’s bad for business.
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Jody Linick is an AIPB Certified Bookkeeper and a QuickBooks® Certified Pro Advisor. Her company, FitBooks Pro (formerly called Linick Consulting), specializes in remote bookkeeping services using hosted QuickBooks and QuickBooks Online. You can find her series of Blog posts here.