What reconciled really means, and why a tidy QuickBooks file can still be wrong

Ask a few business owners whether their books are reconciled and you'll hear yes, mostly. Ask what that means and the answers vary. For some it means the bank feed is connected. For others it means the numbers look about right. Neither of those is reconciliation, and the gap between them is where a lot of quiet errors live.

Reconciled means matched to a statement

In bookkeeping, reconciling an account means comparing the transactions in your books with the statement from the bank, card company or lender for a specific period, and confirming that the ending balance in your books equals the ending balance on the statement. Every line is accounted for. If the difference is zero, the account is reconciled for that period. If it isn't zero, something is missing, duplicated or entered with the wrong amount, and the work is to find which.

The statement is the whole point. A bank feed is a convenience that carries transactions into QuickBooks, but it isn't the statement. Feeds can skip a transaction, bring in a duplicate, or show a pending item that later posts for a different amount. Only the closing statement settles the question.

How a file looks fine and isn't

Here are some of the ordinary ways a set of books drifts without anything looking wrong on the surface.

• A feed imports a charge twice. The expense is overstated, and the bank balance in QuickBooks drifts away from the real one.
• A deposit gets categorized as income when it was really a loan, a refund or a transfer between your own accounts.
• A check written months ago never cleared, and it still sits in your books as if it had.
• A credit card payment is recorded as an expense, so the same spending is counted twice: once when you charged it and once when you paid the card.
• Someone edits a transaction in a month that was already reconciled, and the balance quietly stops tying out.

None of these announce themselves. The profit and loss still prints. The totals look plausible. That's the trap: a report shows you what's in the file, not whether what's in the file is true.

What a month-end close looks like

A good close follows the same order every month, and that repetition is a big part of why it works. Bank and card feeds are reviewed and uncategorized items cleared. Each account is reconciled to its statement. Open invoices and bills are checked: what customers still owe you, what you still owe vendors, and whether anything marked unpaid was actually paid. Payroll entries are compared with the payroll reports. Then the financial statements get a careful read, looking for numbers that don't make sense, such as a utility bill three times the usual or a month with no revenue at all.

Done this way, a close gets quicker as the months pass. Errors are caught while the paper is fresh and while whoever can explain a payment still remembers it. A mistake found in the same month costs a few minutes. The same mistake found a year later can cost an afternoon of digging.

A simple test you can run yourself

Open your most recent bank statement and your QuickBooks file side by side. Find the ending balance on the statement for the last day of the month, then look at the balance QuickBooks shows for that same date, not today's date. If the two differ, ask whether the difference is a few known outstanding checks or deposits in transit, or whether nobody can say what it is.

Then look at the reconciliation history for that account in QuickBooks Online and see the last period that was completed. If the last completed reconciliation is many months old, or there isn't one, you've learned something useful. It doesn't mean you did anything wrong. It means the file hasn't been checked against the outside world in a while, and the longer that goes on, the more there is to untangle.

Where a bookkeeper fits

Reconciling isn't complicated, but it's tedious and easy to put off, and it's the step that makes every report downstream believable. Guirian Bookkeeping Services LLC provides monthly bookkeeping for owners in Waldorf, White Plains, Washington DC, Bethesda and Silver Spring, working remotely in your QuickBooks Online file. Amy Guiriansoro is an Advanced Certified QuickBooks ProAdvisor, and consultation meetings are by appointment. Read about Guirian's monthly bookkeeping service on this site, then call (301) 848-6619 to talk it through.