Small Business Bootcamp: Bank Reconciliations

This article was originally posted on Halon Tax and written by Christopher Ragain, CPA.

Why do we need to know about bank reconciliations?

Bank reconciliations are one of the most basic accuracy checks you can perform for your business. They tell you if your bank balance in QuickBooks Online matches what the bank shows on the bank statement. That is really important because if that balance gets off, or is not accurate, you could end up spending money you don’t have because QBO told you money was there. Just as easily, you may have more money than QBO is telling you, that is a problem as you could use it to grow your business. So bank reconciliations, or what are known more as “bank recs” are very important.

And they are super easy to do, we will show you how to perform a bank rec step by step.

I thought QuickBooks Online did these?

Great question. So before bank feeds, bank reconciliations were a must because either you or a bookkeeper were keying in every transaction and the bank rec could tell you if that work was done right or if something needed to be corrected.

When bank feeds came around, and QBO would enter all of your transactions for you, the urgency of bank recs changed because we could assume the transactions were entered correctly.

However, that is not the case. Bank feeds do not mean you don’t have to reconcile the account. Also, if reconciliations are not done, and the IRS asks for copies of your QBO file in an audit (yes, they can do that) then your financials will not be trusted and could hurt your audit defense.

I will say that 99% of the time, the feed is right, but still do them because several things can still make your balance wrong as I will show you later in the article.

Also, because the feed does most of the work, bank recs usually only take about 5 minutes. They are simple and will help you relax and trust the information in your bookkeeping. That is well worth a 5 minute process.

Bank Reconciliation Introduction

Bank reconciliations compare the transactions in the registers of the QBO file, to the register on the bank statement. Registers are the lists of transactions in an account. Your checking account for your business is a register. It has money come in and go out. The idea is that it matches the actual activity in your bank account.

Your bank account is a register too, it has money go in and out as well. However, the problem comes when you compare the dates. I will give you an example:

Let’s say you are a restaurant and you use QBO to write a check to a vendor to purchase tomatoes for this weeks food delivery. You write the check on September 7th, and hand it to the vendor as they give you tomatoes… Mmmm… I can smell the marinara sauce coming!

The vendor goes home, and cashes your check at the bank the next morning. That is the morning of the 8th. And the bank processes their checks overnight, so it shows as getting deducted from your bank account on the 9th.

This illustrates the problem. Your QBO register shows the money went out on the 7th. Your bank account register shows it went out on the 9th.

If you were to look at both registers at the same time trying to decide if your books matched your bank, maybe you could do it if there was just one transaction, but what happens when there are hundreds? Now it becomes very confusing. Add in weekends and holidays, and you need a tool to figure all of it out… A tool, like a bank reconciliation.

Conducting The Bank Reconciliation

QuickBooks Online has a wonderful tool that makes all of this very easy. To access it, you must open your QBO file and navigate down the left nav to the “Accounting” section. There you will choose the tab “reconcile”


This will open up the “Reconcile an account” screen and we are ready to go.

First, we need to choose what account we want to reconcile. This could be a bank account like your checking account or if you have multiple bank accounts, you have to do each, one at a time.

You will also see in the dropdown several other accounts that could be reconciled. Things like fixed assets, credit cards, liability accounts, and equity accounts. It may look like you need to do reconciliations on like 10 accounts every month!

But don’t be intimidated. Most of those are there just in case some super complicated accounting was going on. For you, reconcile these accounts only:

  • checking accounts
  • credit card accounts
  • loan accounts

Credit cards are very important to do just like bank accounts because you want to make sure no funny business is going on, it is a great way to catch fraud because you are looking at the transactions one more time.

Loan accounts, if you have any loans (like lines of credit, or equipment loans) should be reconciled so that the interest and principal is getting booked and checked correctly.

Most businesses have one checking account and one credit card account, so that would be it each month.

Once you have the account selected, we also need to find the bank statement we are reconciling for. This can be a bit tricky, because if you don’t remember when the account was last reconciled, or you have never reconciled it before, you don’t know where to start. Let me show you how to manage both situations:

Account has never been reconciled

If you don’t think you have ever reconciled the account, there is an easy way to check. Up in the top right hand corner of the screen is a link called “History by account”. Click on that to open up the screen.

Up in the top of the history screen, change the “Report period” dropdown to “All Dates”. This will show you any reconciliations that have ever been done. If this screen is blank, as the example below is, that means reconciliations have never been done and you should start with the first bank statement the bank account ever had.

If you have been using this account for some time, and you have months or years of accounts to reconcile, just start at the first month and work you way month to month using the process we outline.

You can also hire our Halon Financial Accountants to help you by clicking here.

Account has not been reconciled in several months

If you think the account has been reconciled in the past, but you are not sure when, the “History by account” screen will show you what you need to know.

If there are past reconciliations, look to see what the ending date of the last reconciliation is. That is going to be the start date for the reconciliation you need to start with, and if you have several, you can do them all but make sure you do them in order, starting with the oldest and working your way to today.

You can also have our HFA team help you with it by clicking here.

Understanding the reconciliation screen

Now that we know what month we need to work on first, you need the bank statement on hand. Some like to pull it up on a screen, maybe you have 2 screens and the QBO file is on one and the bank statement is on another.

I prefer to do a bit old school and print them out, so I can mark on them. It’s simple either way so do what is most comfortable.

With the bank statement in front of you, enter the ending balance of the statement and the ending date on the statement.

The ending balance is the balance on the statement after the last transaction. They usually have that at the top of the statement (in the summary) and at the end of the statement. The ending date is the last day the statement covers.

Click the “start reconciling” button and you will see the reconcile screen. There is alot going on here, so let me explain…

At the top we have the reconcile calculation. Not sure if that is what QBO calls it, but I will call in the calculation. Here you can see:

A) Statement Ending Balance: This is the ending balance on your bank statement. You entered this when you were on the previous screen.

B) Cleared Balance: This is a number that is going to go up and down based on transactions you check as you complete the reconciliation. It represents what QBO has as the reconciled transactions and influences the “Difference” amount.

C) Difference: This amount shows you the difference between your statement balance and the cleared balance. We want this number to be 0 eventually so we know the QBO register then matches the bank statement.

D) Beginning Balance: This is the ending balance from the previous month’s reconciliation. If this does not look right, be sure to investigate the prior reconciliation.

E) Payments: This amount will increase as you clear expenses or checks in your reconciliation.

F) Deposits: This amount will increase as you clear deposits or income items in your reconciliation. QBO separates Payments & Deposits because many statements will show total deposits and total payments. You can use these to help you find discrepancies later in the reconciliation.

G) Filters: If you want to filter the transactions by Payments or Deposits, you can use these buttons. I usually keep it set to “All” unless I am dealing with a statement that gives you all the payments first, then all the deposits after.

H) Edit Info: This button can be used to modify the ending balance or ending date once you are in the reconcilation. Only use this if you entered the statement info incorrectly when first starting the rec.

I) Save for later: There are a few options in this button, allows you to save and come back, even clear everything and start over if you want, so use as needed.

Matching Transactions

Now we will start checking off transactions using the circles on the right. Start at the top of your bank statement with the first transaction. This is usually the oldest transaction. The oldest transactions are at the top of the reconciliation register too.

Look at the first transaction on your bank statement, the amount and the date. If you see that transaction in your QBO register too, put a check mark by it. Then go to the next transaction, if you see it, put a check by it.

I also like to put a check next to the transactions on the bank statement. This allows me to see at the end what transactions were on the bank statement but not in the QBO register.

You do this check marking work till you have checked for every transaction on the bank statement.

If you are lucky, you found every transaction and your difference amount at the top reads 0.00 and you see a green checkmark. That means you can click the green button up in the top right that says “Finish Now” and you are done!

But, what happens if it is not….

Well, there are a few reasons for that. First, it could be that you made a checkmark mistake, so you should check your work.

It could also mean that there is a transaction on the bank statement that is not in QBO. That is usually the culprit. And that is why we were checking our bank statement too, so now we go back and look at the transactions that do not have checks on them (on the bank statement).

Review them and then go look for them in QBO. If you can’t find them, you need to create them. Could be revenue, could be a payment, but they have to be entered before you can finish your bank rec.

To enter them, click the “Save for later” button so you can leave the bank rec screen and go back to QBO. When entering the transaction, be sure to include:

Correct date
Correct amount
Correct account

If any of those are wrong, they won’t show up in your bank rec correctly.

Once you have entered the transactions in QBO, come back to the reconciliation using the same path as you originally did:

Accounting => Reconcile

Now when you come back, you should see the entered transactions in the register, but no checks next to them. Put a check on them, and now the difference should be 0 and you can finish.

FAQs about Bank Reconciliations

How often should I perform bank reconciliations?

Bank recs should be done every month, usually right after you receive or can download the bank statement. If you miss one or two months, get caught up as quickly as you can and always start with the oldest month, don’t try and work from today back, it won’t work.

What if I can’t find a difference?

This will happen to you eventually. You will finish a bank rec and you will have a difference and you look and look, but can’t figure out where it is. If it is a small amount, you can use the reconciliation adjustment to create a transaction so it balances. This places a transaction in the books.

If it is a large amount, you need to try and find it. If you know it was in the month you are working on (meaning it is not a difference that has been carried forward month after month from some prior period) then break down your bank rec by deposits and checks. That will help you isolate where the issue is rather than searching the whole statement.

What happens if I never reconcile my accounts?

It’s a good question. And to answer you honestly, you can go for a time without reconciling. However, has months turn into years, you will start to see bigger and bigger problems.

For instance, if you have a credit card but are not bookkeeping the interest of the card because it does not come through the bank feed, you are missing out on a legitimate deduction.

Also, if you are not reconciling credit cards or bank statements, your balances will slowly be wrong. Then if you go to get a loan, or an investor does any due diligence, when they compare the bank statements to the books, they won’t tie, and the bank or investor will walk away because it means they can’t rely on your financial statements.

Reconciling Credit Cards, Loan Accounts, and More

Speaking of credit cards and loans. These accounts should be reconciled too, just like your bank accounts.

The process is the same, and as a CPA for 20 years I can tell you it is often the credit cards and loans not being reconciled that keeps a business from the financing they need, the investor they wanted, or a sudden surprise that their financial position is not as good as they had thought.

Closing the Period After Reconciliation is Complete

Once you reconcile, it is a good idea to close the books. This prevents users from entering transactions for any dates before the reconciliation date and messing up the previous bank recs.

You can do this by going into the company settings and entering the date as shown above. Enter the last day of the bank statement here and use a password so no one can do it without you knowing…

Deleting a Bank Reconciliation In A Prior Month

Sometimes you might need to redo or delete a reconciliation. This is not something that should not be done lightly if you did the rec the right way. If now the reconciliation is off, there might have been a transaction entered in a prior month and that is the issue, not a new rec (as I mentioned above).

But if you really need to do it, here is how:

Go to the reconcile screen, then to the “History by account” screen in the top right corner

Find the reconciliation that you want to delete, and click on the arrow next to view report

Select “Undo”

Now you are going to get a warning that looks like this:

And that is normal, if you do want to undo the reconciliation, click yes.

Now you can redo the reconciliation when you like. If you elect a few months back, it is going to undo all of the recs from that date to today.


If you follow this procedure your bank reconciliations may not be easy but you will know what you are doing. If you get stuck or need Halon Tax and our financial accountant team to jump in, just visit us at or email our financial accountant team at

Read more about Halon Tax here.

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