Episode 37: Does Your QuickBooks Actually Match Your Bank? Why Reconciliation Matters

Episode Overview

Your bank account is connected to QuickBooks. Transactions are flowing into the bank feed. Expenses are being categorized. Everything looks pretty good.

But does that mean your QuickBooks numbers are actually correct?

Not necessarily.

In this episode of QuickBooks Mastery for Small Business Success, father-daughter team Erica Northrup and Lee Davis break down QuickBooks reconciliation and why it is one of the most important checks a business owner can make when evaluating the health of their books.

The episode grew out of a real reconciliation Lee performed on one of their own accounts. It was not a perfect sample-company demonstration. Lee discovered duplicate transactions, a customer payment posted to the wrong bank account, payroll transactions flowing into the wrong account through an integration, and several other issues that had to be investigated before the account could be reconciled.

That real-world example reinforces one of the central lessons of the episode: reconciliation is not the problem when it discovers something wrong. Reconciliation is the process that reveals the problem.

Why This Topic Matters

A common misconception among QuickBooks users is that connecting a bank account means the accounting records automatically match the bank.

They do not.

The bank feed helps bring transactions into QuickBooks and makes it easier to categorize or match them. Reconciliation performs a different job.

As Erica summarizes during the episode:

The bank feed helps build the books. Reconciliation checks the books.

When you reconcile a QuickBooks bank or credit card account, you compare what QuickBooks says happened with an independent source: your bank or credit card statement.

You are looking for questions such as:

• Were all cleared transactions recorded?
• Were they entered for the correct amounts?
• Is anything missing?
• Was something entered twice?
• Did a payment go to the wrong bank account?
• Are transactions sitting in the account that do not belong there?
• Does the reconciled ending balance agree with the statement?

That matters because your QuickBooks reports are built from the transactions underneath them.

A polished Profit and Loss does not automatically mean the information is correct.

QuickBooks will generate a report using the information it has been given. It cannot guarantee that every transaction was entered, matched, classified, or posted correctly.

What You’ll Learn

In this episode, Erica and Lee explain:

• What QuickBooks reconciliation actually means.
• Why bank feeds and reconciliation are not the same thing.
• How duplicate transactions can distort expenses and profit.
• Why a customer payment may appear to disappear when it has actually been posted to another bank account.
• How payroll and other integrations can create unexpected reconciliation problems.
• Why a negative QuickBooks bank balance deserves investigation.
• What getting the reconciliation difference to zero actually tells you.
• Why a zero reconciliation does not automatically mean every account classification is correct.
• What to investigate when your reconciliation does not balance.
• Why you should not simply force QuickBooks to create a reconciliation adjustment.
• Why regular reconciliation gives business owners more confidence in financial reports.

Key Takeaways

1. A connected bank feed does not mean your books are reconciled.

Seeing transactions inside QuickBooks tells you information is moving between the systems. It does not prove the accounting records accurately reflect the bank.

2. Ordinary mistakes can create significant reporting problems.

A $500 transaction recorded twice becomes $1,000 of activity in QuickBooks even though only $500 actually left the bank.

A customer payment posted to the wrong bank account can make one account look too high and another too low.

An incorrectly configured payroll integration can send transactions into accounts where they do not belong.

3. Reconciliation helps uncover those differences.

The goal is not merely to make QuickBooks display zero. The goal is to understand why the QuickBooks records and bank statement agree—or why they do not.

4. Zero is important, but it does not certify your entire QuickBooks file.

A zero reconciliation difference provides evidence that the cleared activity for that bank account and statement period agrees with the bank statement.

You could still have an expense categorized incorrectly or another bookkeeping issue elsewhere in the file.

5. Financial reports are only as useful as the information underneath them.

Business owners use their numbers to make decisions about spending, hiring, distributions, profitability, taxes, and growth.

Those decisions become much harder when the underlying books cannot be trusted.

Common QuickBooks Reconciliation Mistakes

During the episode, Erica and Lee discuss several common problems:

• Adding a bank-feed transaction instead of matching an existing transaction.
• Entering the same expense twice.
• Posting a customer payment to the wrong bank.
• Accepting an incorrect category suggested through the bank feed.
• Payroll integration settings pointing to the wrong general ledger account.
• Transactions appearing in the wrong statement period.
• Bank charges or other transactions being omitted.
• Old activity sitting in a bank register long after it should have been corrected.
• Trying to force a reconciliation rather than finding the cause of the discrepancy.

Practical Action Steps

Your challenge after listening to this episode is simple.

Choose one business bank account in QuickBooks.

Pull the most recent bank statement.

Then ask:

When was this account last reconciled?

If it is current, excellent.

If it is not, determine where the reconciliation stopped.

If you are not sure whether your accounts are being reconciled at all, that is important information to discover.

Checking your bank balance tells you what the bank currently reports.

Reconciling tells you whether your accounting records agree with the activity reported by the bank.

Those are two different questions.

Frequently Asked Questions

What does reconciliation mean in QuickBooks?

QuickBooks reconciliation is the process of comparing the transactions and balance in a QuickBooks bank or credit card account with the corresponding statement to identify differences and confirm that cleared activity agrees.

Is my QuickBooks reconciled if my bank account is connected?

No. A connected bank feed brings transaction information into QuickBooks. Reconciliation separately checks whether the resulting accounting activity agrees with the statement.

Why doesn’t my QuickBooks balance match my bank?

Possible causes include missing transactions, duplicate entries, transactions posted to the wrong account, timing differences, unmatched transactions, integration problems, or incorrect amounts.

What does zero mean in a QuickBooks reconciliation?

A zero reconciliation difference means the cleared QuickBooks activity you selected agrees with the ending balance being reconciled to on the statement.

Does a zero reconciliation mean everything in QuickBooks is correct?

No. A transaction could still be categorized to an incorrect income or expense account. Reconciliation tests the bank activity, not every accounting decision throughout your QuickBooks file.

Can duplicate transactions affect my Profit and Loss?

Yes. If an expense is recorded twice, expenses may be overstated and profit may be understated even though the bank only paid the expense once.

Is looking at my online bank balance enough?

No. Your online balance tells you what the bank reports. It does not tell you whether QuickBooks accurately reflects the underlying activity.

What should I do if QuickBooks will not reconcile?

Investigate the difference rather than automatically forcing an adjustment. Look for duplicates, missing transactions, incorrect amounts, wrong accounts, date differences, bank charges, and integration issues.

How often should I reconcile?

Reconciliation should become part of your regular bookkeeping routine. Staying current makes problems much easier to investigate than waiting several months and trying to reconstruct what happened.

What if my QuickBooks has not been reconciled for a long time?

Start by identifying the last reliable reconciliation and understanding the condition of the accounts. If several months or years of activity are involved, the cleanup can become more complicated and professional assistance may be worthwhile.

Resources Mentioned

Free QuickBooks Clarity Scorecard:

https://lee-davis-and-company.aweb.page/unlock-clarity-free-scorecard

Lee Davis & Company:

https://leedavisandcompany.com

Have a QuickBooks question?

[email protected]

TIMESTAMPS

00:00 — QuickBooks Mastery Podcast Intro

00:56 — Episode 37: Does Your QuickBooks Actually Match Your Bank?

04:04 — What QuickBooks Reconciliation Actually Means

07:57 — Bank Feed vs. Reconciliation: They Are Not the Same

11:22 — How Unreconciled Accounts Affect Your Financial Reports

14:42 — A Real-World QuickBooks Reconciliation

19:25 — When a Payment Is Posted to the Wrong Bank Account

22:26 — Payroll Integrations and the Negative Bank Balance Mystery

25:20 — Why Getting the Reconciliation Difference to Zero Matters

28:08 — What to Do When QuickBooks Won’t Reconcile

33:26 — Why Reconciliation Matters for Business Decisions

35:13 — Checking Your Bank Balance vs. Reconciling QuickBooks

37:25 — A Simple $10,000 Bank Reconciliation Example

39:20 — The Bigger Lesson: QuickBooks Should Reflect Reality

40:05 — Four QuickBooks Reconciliation Takeaways

41:29 — Your QuickBooks Challenge for This Week

42:16 — Free QuickBooks Clarity Scorecard

43:12 — Building Deeper QuickBooks Training

44:26 — Next Episode: How to Correct QuickBooks Mistakes

45:00 — Lee’s Final Reconciliation Advice

46:28 — Podcast Outro and Resources

Call to Action

If this episode has you wondering whether you can trust more than just your bank balance, start with the free QuickBooks Clarity Scorecard.

Reconciliation is one important piece of the bigger question:

Can you trust your QuickBooks numbers?

Use the Scorecard to take a step back, evaluate the health of your QuickBooks file, and identify the areas that may need attention.

Welcome to QuickBooks mastery for small business success. I'm Erica Northrup.

And I'm Lee Davis.

I handle the tech, and he handles the numbers, and together as a father-daughter team, we bring decades of experience helping small to medium-sized businesses thrive.

We know that as a business owner, your time is best spent mastering your craft and growing your business, not getting lost in QuickBooks. Managing finances can be confusing, and you don't have hours to waste sorting through spreadsheets or fixing bookkeeping mistakes. That's where we come in, helping you streamline QuickBooks so you can focus on building your business.

Each week we break it all down into simple, actionable steps so you can focus on growing your business, not fixing your books.

Let's embark on this journey together

So welcome back to QuickBooks Mastery for Small Business Success. I'm Erica Northrup, and I'm here with my papa, Lee Davis and this is episode 37, Does Your QuickBooks Actually Match Your Bank? Why Reconciliation Matters. Over the last two episodes- We've spent quite a bit of time talking about the chart of accounts. We've talked about how the chart of accounts is really the foundation underneath your QuickBooks file, how those accounts feed your profit and loss and balance sheet, and why the way everything is set up has such a big impact on your financial information you're looking at. But today, we want to take that conversation one step further because let's say your chart of accounts is set up correctly. You've got income going where income should go. Your expenses are categorized. Your bank account is connected. You log into your QuickBooks, and on the surface, everything looks pretty good. Here's the question: How do you know the numbers in QuickBooks are actually right? Because I think this is one of those places where it's really easy for a business owner to make an assumption. You see your bank transactions coming into QuickBooks. You recognize the transactions. Things are being categorized, so it feels like QuickBooks and the bank must be talking to each other and everything must be accurate, but those are actually two different things. Your bank being connected to QuickBooks does not automatically mean that what QuickBooks says happened matches what actually happened at the bank, and that is where reconciliation comes in. Now, reconciliation is one of those accounting words that can immediately make something sound more complicated than it really needs to be. A lot of business owners know they're supposed to reconcile. Their bookkeeper might reconcile. Their accountant has probably asked whether the accounts are reconciled. But I don't know that everybody really understands what we're testing when we do it or why it matters so much because this isn't really about checking off another bookkeeping task. It's about answering a much bigger question: Can I trust the numbers I'm looking at? And Papa, you recently recorded yourself actually reconciling one of our accounts, and I love that example because it wasn't perfectly clean. You found duplicate transactions. You had a customer payment that wouldn't match. You eventually discovered it had been posted to the wrong account. You found payroll transactions sitting where they didn't belong, and you had to work through those things before you could finally get that reconciliation to zero. And to me, that's the perfect picture of why reconciliation matters. It's not about getting QuickBooks to say zero. It's about finding the things that don't match reality before we start using those numbers to make decisions about the business. So Papa, let's start there. When somebody says you need to reconcile your bank account in QuickBooks, what are you actually doing?

Erica, first, I think I have to confess-... that, you know, even bookkeepers need help.

Yep...

with bank reconciliation. And I think it's a little bit like the cobbler's shoes. You work on everybody else's account- Yeah... and then you get to yours and you say, "Oh, I guess, I guess I need to clean this up." That bank reconciliation does matter.

Yeah.

We can start there. And part of the reason I chose to send you that video On the way I reconcile the bank account is because really there's no good training tool for that. Mm. And like Craig's Design and Landscape Services, there's no actual solutions or tools in bank reconciliation. Mm. You really have to be able to look at some actual work, and that's why I chose to look at our work.

Yeah.

And then go through it. And so I think in its simplest form, when we talk about bank reconciliation, we're talking about comparing two sets of records, the bank or credit card statement and the bank or credit card account in your chart of accounts. And we have what we say happened at the bank. We have the- Mm a bank statement, and then we have what QuickBooks says happened. Sometimes it's a bit of a mystery-... when we talk about mysteries. And we want to look at those two particular sets of information and see- Mm-hmm... what happened, like a story. And we want those two sets of documents or those two sets of files, if you will, to agree. And for you to think that the bank doesn't make any errors, I think is, is probably not a safe assumption. Banks make mistakes. And while there could be cases when a bank, for example, your bank, I've seen it, where a, you make a deposit today, the bank has a hold on your deposit and it could take a week to 10 days in some cases. So anyway, your bank statement is a tool and we do want those two sets of information to agree. And you're gonna have a bank statement with a beginning balance, all of the activity during the statement period, and an ending balance. And QuickBooks has its own record of transactions that have been entered. It too will show you the beginning balance- Mm... and the transactions that all happened during that period and what is the ending balance. All right. Once you go through the reconciliation process- Mm-hmm... I think it's really important that it's a process- Mm... and that the reconciliation, it lines up, if you will. Mm. You're essentially saying, did the transactions that cleared the bank also get recorded into QuickBooks? Were they recorded in the correct amount? Are we missing anything? Did anything get entered more than once? Mm. Did something get entered into the wrong account? And are there transactions in QuickBooks that shouldn't be there? Does the ending balance ultimately agree? And when you look at the checks outstanding, are they also outstanding in QuickBooks? Considering the integration with various apps such as Payroll, Stripe, and Square, if everything is straightforward, then you have no problem. Mm. If it isn't, then you have transactions that will appear outstanding on your bank reconciliation report that need to be corrected. Mm. This information is located in your chart of accounts under your bank or credit card account, 'cause sometimes people don't know where to look. Mm. Again, we've talked about the chart of accounts. Yeah. Go back into our podcast. I think it was excellent. Once that reconciliation gets down to zero, you have evidence that the activity you reconciled in QuickBooks agrees with your bank statement. That's important because the numbers on your financial reports are built from those transactions.

Yeah, that makes a lot of sense, Papa. Okay, and I think that's an important distinction, right? Because I think there are probably business owners listening who are saying, "But Papa, my bank is connected to QuickBooks. I can literally see the transactions coming into the bank feed. Isn't that basically the same thing?"

I love stories, right? Yes, yes. And I think, I think you and I are both storytellers. But I think stories are really helpful because in some cases, when you listen to some actual clients of ours as we've been helping them through their training adventure, what you sometimes hear is, "Oh, I've never reconciled. I didn't know that was a thing." And in reality, that's the truth, okay? And nobody tells you when you sign on to QuickBooks that these are the tools you need to pay attention to. I guess I could go back to your range hood. I've learned quite a bit about your bills and- And getting that range hood done Yeah and the various tools that were needed, but the bank feed is a tremendous tool if it's used correctly. If it's sharpened and you know some of the tricks to using it-

Yeah...

then you can know how it can be most effective. Mm. It brings information into QuickBooks and helps you match and categorize transactions.

Yeah, that's huge.

But just because transactions are appearing in the bank feed doesn't mean your accounting records are correct. You still have to know what QuickBooks did with those transactions. Yeah. Did you enter something that was already entered? Was the transaction posted to the correct bank or credit card account? Was it categorized to the appropriate account? I had a client who immediately sounded the alarm because she thinks a lot of work has been entered through the bank feed that should have been categorized differently. So while there are some categorization issues that look okay, you have to ask yourself, was the right account used in the chart of accounts? Should something have been categorized under cost of goods sold, or should it have been used for, for a different type of account? Did something happen manually that the bank feed didn't properly connect with? The bank feed is not 100% accurate.

No.

Okay? Just know that.

Yeah, absolutely.

And sometimes between what the bank relates to QuickBooks and some of the banking problems that they have from their end is a very real issue, and there are mistakes that happen. But the bank feed helps you process transactions. Mm-hmm. And that's what the reconciliation- verifies this or that result.

Absolutely. I love that. So maybe the easiest way for a business owner to remember this is the bank feed helps build the books, reconciliation checks the books. Mm-hmm. So the bank feed helps to build the books, and the reconciliation checks the books. Remember that, 'cause I think that will help you when we're talking about reconciliation and everything connected to that. So good. I think

exactly, Erica. I was just talking to somebody who has her own bookkeeping firm, and she names her firm By the Books.

By the Books. That's a good name. It's a great name. Yeah,

I like it.

That's so good. I like it. So good. Okay, and this is where, you know, I want to connect today's conversation back to what we have been talking about with the chart of accounts, because we spent two whole episodes talking about how QuickBooks builds the profit and loss and the balance sheet. So if the bank account isn't reconciled, what does that potentially mean for those reports, Papa?

It means you should be cautious- Yeah... about assuming those reports are completely accurate.

Yeah.

Because reports are only as reliable as the transactions underneath them. Let's say that the, under the accrual basis, you have entered a duplicate expense in QuickBooks. This could happen if you entered an expense through the bank feed and you entered the bill without paying a bill. Mm-hmm. A very common error. The bank only paid that check once, all right? So, but somehow it got entered twice. It's interesting. Mm-hmm. You know, uh, when I tell people this happened, nobody ever knows how.

Right.

It's really a mystery. A mystery. I said, "Okay, it doesn't matter how it happened."

No, no.

What matters is how we're going to help you with it, right? Right, right. So, so under the accrual basis, your expenses may be overstated. Mm-hmm. Profit could be understated. Now, your bank balance may be wrong. Depending on how it was entered, your income or accounts receivable could also be affected. Maybe payroll transactions went into the wrong bank or general ledger account, or in some cases I've seen where people have entered under the bank feed, they've accepted QuickBooks', uh, recommendation and put everything under expense. Mm-hmm. Payroll expense. Your payroll expense becomes a very big number. Mm-hmm. And your other general ledger accounts such as wages and payroll tax liability are understated. So now that you're looking at the balance sheet and wondering why one bank account is negative or why the balance doesn't make sense, reconciliation gives you an opportunity to find those errors or those cases where the chart of accounts isn't correct.

Okay. So in other words, I could pull up a beautiful profit and loss in QuickBooks. Mm-hmm. QuickBooks isn't going to put a warning across the screen that says, "Erica, do not make business decisions from this report." It will just generate the report based on what's in the system. Is that correct?

That's right. I think- Yeah... you're, it's amazing what you're learning, and because QuickBooks is going to report what you told it.

Yeah.

Okay? It's not, even in the AI world and all these popups that say, "We can help you," no, if the information's wrong, it's wrong.

Uh,

QuickBooks is a good tool. It's a very good tool. Mm-hmm. But you still have to understand the information that's being put in it.

Absolutely, Papa. And I feel like that's such a big theme for us, right? Because we're not trying to turn every business owner into an accountant, but that's not the goal. But I do want business owners to have enough understanding that when they pull up those numbers, they can say, "Yes, I have some reason to trust this," instead of, "The bank is connected, so I assume it's right."

Absolutely.

Yeah. So good. Okay, so now the one reason I really wanted to do this episode is because you recently recorded yourself actually doing one of our reconciliations, and I thought it was interesting because it wasn't this perfect little QuickBooks demonstration where everything worked out the first try. You started reconciling, and QuickBooks basically said, "We have some things here that- Mm-hmm... need attention." And then you had to start working through what had happened. I actually think that's much more useful than watching a perfectly clean sample company. So let's talk about some of those things you found because, Papa, I think why this is so valuable is because in life nothing is perfect. You're always gonna have issues. You're always gonna have to work through things and dig through it and get it to reconcile, right? You know, 9 times out of 10 it's not gonna be perfect the first time through, is it? Oh.

Given the fact that I've already confessed that even bookkeepers need help their QuickBooks.

Even we need help.

Um, even we need help. That when you make changes, and whether you add bank accounts or you make some changes with a credit card file or whatever, there are a number of ways you can have transactional issues. Perhaps a transaction was already entered into QuickBooks, and then someone adds the bank feed transaction instead of matching it. Yeah. Maybe there was an import problem. The important part is that you don't want one economic transaction reported twice. Mm-hmm. If the bank paid $500 once, but you recorded two $500 expenses, QuickBooks now thinks- A thousand dollars happened. The bank statement will tell you otherwise. That's one of the pieces that reconciliation will expose.

Yeah. That's such a good call-out, Papa, and this was one of the first things that I noticed, was that you had some older transactions sitting there that looked like duplicates. So what you were just describing was one of the first things that I found when we were walking through this recording that you did of you reconciling your QuickBooks. So good. Okay. So, you know, that is a great example of why the transaction is in QuickBooks isn't enough. It could actually be in QuickBooks twice, couldn't it?

That's correct, and part of this, I remember back to when I was working through that reconciliation- Mm-hmm... is it's not always what you do.

No.

We have a couple of interfaces we use. Yeah. One is with Paychex, and their system wasn't updated.

And just before you cut out, Papa, you were talking about how in Paychex, that their system wasn't updated, and I think that's- Yeah... a great call-out because sometimes it isn't about human error. Sometimes there are errors that happen because software isn't updated, or it's not doing what it's supposed to do, or it, it's not perfect, right? No. I think sometimes we can rely too heavily on the software to do what it's called to do, and it should always do what it's called to do, but sometimes things happen, and you need to be aware of those and then be able- Mm-hmm... to correct those.

In any payroll company or in any company that brings your data into QuickBooks, there could be some changes. Mm-hmm. That there could have been multiple payrolls run because of a payroll correction.

Mm.

And QuickBooks isn't gonna necessarily understand that interface connection. It's not gonna say, "You keep this payroll. You get rid of this payroll. You make this correction." Mm. So it's always important to look at transactional work that comes through an interface, any form of interface- Mm-hmm and get it tested. Mm-hmm. I think oftentimes people will launch an interface without actually going back and looking at, did this actually happen, and is this receipt exactly what came into the bank?

Yes.

Or is there- Absolutely... another setup issue that we have to deal with? That could be a simple factor, and I think sometimes when you look at the interface with QuickBooks Payroll, they expect you to have the right QuickBooks account set up that are gonna match what they're going to do for payroll. Mm-hmm. So again, when things are automated, they're gonna be automated the way you set them up.

Right. Right. So I guess it all comes back to that setup, right? That- that's right. Get that setup right the first time.

I hate to say it, but that's right.

Oh, this is so good. And then you ran into another one that I think is such a perfect real life example, Papa. You were trying to match a customer payment. The dollar amount looked right, the date looked right, you knew the payment existed, and QuickBooks just would not match it, and you kept looking at it like, "Why is this not working? Come on, QuickBooks." And then eventually you realized what happened. So can you walk us through that, Papa?

That's right. I had posted a payment-

Yeah...

Bank of America instead of the Bar Harbor account. We use two accounts, and we've been moving a lot of work over to Bank of America. Mm-hmm. And so I was trying to reconcile one bank account while the QuickBooks transaction was sitting on another account. Mm-hmm. That simple. Yeah. And QuickBooks will remember, this is where you have to understand QuickBooks is intuitive in some ways. When you posted a payment, when you received a payment on a customer file, it's gonna remember the last time you received a payment, and it's gonna use that same bank account. So it's always important to take time, slow down, and post the payment to the correct bank account. The deposit. Yes, when you post through undeposited funds, yes, you need to make sure that you've selected the customer deposits and they go to the right bank account.

That is such a small mistake, right? We're not talking about someone who doesn't understand QuickBooks. I mean, you are the QuickBooks guru. You are the master of QuickBooks. Mm-hmm. Yeah. We're talking about you selecting the wrong bank from a drop-down, which anyone could do. Even doing things that I am extremely proficient in, I make mistakes, and I have to go back and correct those mistakes because I'm tired, I was thinking about something with the kids, or I was doing this or I was doing that, and I just was not paying attention, and those things happen.

Exactly. I think that's the point. Things do happen.

Yeah.

I could pick up the phone and I could have been doing some of the work and- Yeah... somebody else calls, and lo and behold, off I go

Off you go.

Yep... it's that I simply made a mistake. QuickBooks will let me do it.

Yeah.

And if you don't have a system for reviewing those mistakes- Mm-hmm then transactions will just sit there.

Yeah, and then months later you're wondering why Bank of America is off by $1,757.60 or whatever the number is. That's right. Yeah.

And you're trying to remember what happened months ago.

Yeah,

which is challenging. And it's much easier to catch something while you're working on the current bank statement. Uh, again, I confess, I may leave my bank statements for several months, and maybe I need to improve.

Well, you are very busy helping other people- That's right. Yeah... get on top of their things, so I think, I think we give you a break there. Absolutely. Right. But then after you corrected that transaction, there was another moment in the recording that I thought was really interesting. You looked at QuickBooks and basically said, "Why do I have a negative balance in this account?" And you started tracing it. So what did you find, Pepe, when you traced it back?

So I found some transactions that had been integrated into QuickBooks into the wrong bank account. Mm-hmm. It's not something I did, but my integration in Paychex wasn't correct. Mm-hmm. So once I looked at the register and worked through those transactions, I could see what was creating the problem. And what was important to know is that I needed to delete those transactions out of that account. Mm-hmm. But I needed to reach back out to Paychex- Mm... to have them record it to the correct account. Mm-hmm. Now, if underneath the hood it had gone to the right account, I wouldn't have an issue. And I have to understand that integration to know when I can fix something, or when that I could delete it, certainly, from the account. I did. Mm-hmm. But I had to reach back out to them to say, "Could you rerun that payroll for me for these dates so it came into the right bank account?" And they had to fix it on their end, and then everything worked great.

Mm. That is so good. You know, and I want business owners to hear this part, because how many people have opened QuickBooks, looked at a number, and thought, "That doesn't look right," and then closed QuickBooks?

Mm-hmm.

Yeah, probably, probably quite- Yeah, probably

quite a few. Probably quite a few. We're working with several clients, I have over the years, that, yes, they've opened it up and closed and say- Yeah... "We gotta do something about this."

Which I totally understand, because if you don't know what you're looking for, sometimes the easier answer is, "I'll deal with it later." But that's really where reconciliation becomes detective work, isn't it? Yeah. Yeah,

and, and I like detective work, actually.

Yeah, you do.

Um, I'm married to a woman who has taught me that when we lived on Haynes Road, she was a detective.

The Haynes, the Haynes Road detective.

Yeah. Yeah. And you know, recently she was, because Mama does some scanning work in our office.

Yeah.

She was noticing that my landlord's friend backed into her car, and she was looking out the window and I said... And she says, "Oh, I need to call Susie. We need to call Susie 'cause somebody just hit her car." Oh. And I said, "Yeah, that somebody would be her boyfriend." I said, "So, so I, I don't think we're gonna call."

No.

And he might have just tapped it, but anyway. Right. We know we're not calling her.

Oh. Oh, dear. Well now Susie knows.

Right. But yes, having a bit of a detective background has helped me over the years solve some mysteries for people in QuickBooks.

Yeah. Yep. So just going back to what we were just talking about, the, the recording, eventually you went back into the reconciliation, right? And you put it in the statement information, you work through everything, and you got to zero. Why is that zero such an important number and the reconciliation report important, Papa?

Because I tell people it's like a report card

Right.

Do you know, when you bring your report card home, back in the day when I was a kid crossing over the bridge, I thought about dropping my report card in the river.

Yeah.

And my parents would never know that I had failed. And so because you're trying to get the reconciliation difference to zero- Mm-hmm... that tells you that the activity you've selected in QuickBooks agrees with the ending balance you're reconciling to on the bank statement. So when I finished that particular reconciliation, QuickBooks showed zero, and I could complete it. Mm. You could still have something categorized to the wrong expense account. You could still have other bookkeeping issues, but as far as the bank account and that reconciliation period are concerned, you've demonstrated that the cleared activity and the bank statement agrees, and QuickBooks will tell you, "Good job," right? Mm. And that's a very important control. And don't forget to print out your bank reconciliation report. That will show you some work that needs correcting- Mm... even if you've gotten to zero and- Mm... QuickBooks told you, "Good job."

Yeah, even if you got that A+, you know? I love that distinction, too, because I don't want someone listening to think, "Great, I reconciled everything in my entire QuickBooks file- Yeah is guaranteed correct." That's not what you're saying, is it, Papa? Mm-mm. No. Yeah, absolutely not. But it does answer one very important question. Does the activity QuickBooks says went through this bank account actually agree with what the bank says went through this account, doesn't it, Papa?

Yeah, that's exactly the concept, and I think when you're looking at your balance sheet, it's really important for the bank to see, or the end user or whoever is using your financials, that your- Mm general ledger accounts that appear- Mm... on your balance sheet and on your profit and loss have a clear transactional relationship and that it equals. Mm. Okay? That your profit and loss on your balance sheet show exactly what they should on your profit and loss statement. So it's really critical when you think about bank reconciliation as the very important key to that.

Yeah, absolutely. Okay. So Papa, let's say somebody listening gets brave after this episode. They open QuickBooks, they pull out their bank statement, they start reconciling, and they do not get zero. What should their mindset be? Because I can see someone sitting at 2,800 difference and immediately starting to panic.

The first piece, because I'm a practicing bookkeeper, okay? Yeah. I work with a lot of client accounts that I do, we do their bank reconciliation. So the first thing I do is jump right to the end of the statement because QuickBooks, according to the bank feed, they may check it off as cleared. Mm-hmm. Okay? But it didn't come through the bank, and there could be date type issues, one day, two days. Mm-hmm. So things could indicate cleared on QuickBooks, but they didn't come through the bank. Mm. Or vice versa.

Yeah.

You could start looking at the transactions that jump right to the end. Like- Mm-hmm... it's like reading a good book. Right. You can't wait to get to the end.

Just read the ending

Just read the ending.

Okay Just make sure that you know the hero doesn't die.

That's right. Yeah And so you might solve your problem right there, okay? You can also understand where some transactions may have been entered twice. A transaction that's missing a wrong dollar amount, a payment applied to the wrong bank account, transactions sitting in the register that don't belong there, transactions from different periods. I say that because in a cleanup operation we're currently doing, somebody entered a lot of transactions through a checking account that was already voided, okay? So something that hasn't been matched properly, a bank service charge or a transaction is mismatched because of the date, information entered through the bank feed that was downloaded and entered into QuickBooks that goes back to a, like I said, a cleanup period, and you have to work through it. And you don't wanna do this, simply force the reconciliation because you want to finish it. What you don't want to do is simply force the bank reconciliation because QuickBooks will let you force the reconciliation, and you don't wanna do that.

This reminds me of something Mama taught me that has stuck with me. She has always said, "Don't force it or you'll break it."

That's a famous line of hers.

It is. I can't tell you how many times I have heard that, but it's true. When you try to force something, you break it, and that also shows up into QuickBooks. When you try to force it, you don't necessarily break it, but you cause yourself a lot of extra work that doesn't need to happen.

Well, QuickBooks has a warning if you do that.

Mm. '

Cause it's just gonna make it equal.

Right.

Okay? And I've told people, and it will show up in the error in the reconciliation report. Yeah. So you won't get away with it, all right?

Mm.

You can't hide it. It shows up. Right. So it just- Right... has to be undone and fixed.

I suppose the whole purpose is to identify why QuickBooks and the bank doesn't agree, isn't it? Correct. Right. And that's probably the part I'd be tempted to do. Is there an, "I don't care, just make it zero" button?

Oh, there is.

Is there, Papa?

Oh, there is. I think we just talked about it.

Yeah, that's

true. You can force it to agree.

Right.

And QuickBooks is gonna make the adjustment for you. Mm. But it doesn't solve your underlying problem.

This is so true. You know, something I've realized in my life is if I put something off, it only gets harder. Mm-hmm. So a lot of times it's just better if I just do it right then. I think about the dishes. If I wait a couple of hours to do the dishes, or I wait till the next day, the food is really stuck on and it's hard to get off, and you have to soak it. And if you just did it right after dinner, it just wipes off so easily. Yeah. So you can apply that to so many aspects of your life. Just do it now.

Yeah. Well, yesterday I was working on a client file. I had one client that I knew I had to get their work done, and it would take about two hours. Mm.

Yeah.

And then I had something else that I think would take me longer, but it was something I was currently had my hands on. Mm. And if I was gonna get it done and get it done right, I needed to stick to it.

Right. Mm.

So I chose to do it now, and I was glad I did, 'cause I found a little bonus that helped me get it done. Hey. Nice. So sometimes there's a little bonus, like you don't get that food stuck.

Right. Right. Right. Which is a big bonus. That's a little bonus. You know, that's a pretty big bonus. Oh, so good.

Uh-huh.

So really, when reconciliation finds a problem, reconciliation isn't the problem. It's the thing that told you there was a problem.

Exactly.

Yeah. It- You know, that is a big shift. It's a big mindset shift, right? Because I think people sometimes view reconciling as this annoying bookkeeping task, but the fact that it doesn't reconcile may be valuable information because if it doesn't reconcile, you know there's a big problem, and then you can address this problem, and then you can get to the root of it.

That's it.

Yeah. So good. Okay, so let's pull this up out of QuickBooks for a minute and talk about the business because I want listeners to understand why this matters beyond getting a green check mark in the software. When you sit down to look at how the business is doing, you may be looking at cash, revenue, expenses, accounts receivable, accounts payable, profit, maybe what you can afford to spend, whether you can hire, whether you can make a major purchase, whether there's enough cash to make a distribution. Those are real business decisions, so if your underlying numbers haven't been checked against reality, there's risk there, isn't there, Papa?

Absolutely. I was recently working with a client who had started their business the first of the year, and she was concerned that some of her work in QuickBooks wasn't reflecting the actual story, all right? And she wanted to get ahead of it, and so we were able actually to show her and to help her not to feel like she had to run from her QuickBooks- Right... but could actually embrace it.

Which is so good.

And so I think that's really the story, Erica. Yeah. You know, to say, "Here, my QuickBooks is telling the right story."

That's so important. "

And here's what I can do to make it work."

Yeah. Yeah, absolutely. So this really becomes part of what I would call a QuickBooks health routine, right? We all have routines and systems that we lean into to help us be successful at things. When we're not just entering transactions all month and hoping everything is okay, we're stopping and checking, does QuickBooks agree with the outside source, the actual bank?

You got it. Absolutely.

Yeah, so here's another distinction I want to make. What about the business owner who says, "Papa, I don't need to reconcile because I check my bank account every morning. I know exactly how much cash I have"? What's the difference between logging into online banking and looking at your balance versus reconciling QuickBooks?

Yeah. That's really a good question, Erica, because in today's world- Mm... people want an answer now.

Oh, we are the microwave. Just give- We want it yesterday. No, maybe today... just tell

me how much is in my bank account.

Right.

Okay?

Yes.

Uh, but looking at your bank account tells you what the bank says your balance is. If you have outstanding checks, or maybe you have deposits that the bank hasn't cleared- Hm... the bank will not reflect your current balance. It doesn't tell you whether QuickBooks accurately reflects everything that happened. Those are two different questions. One, you're looking at a balance today at your bank.

Yeah.

But you may have done some transactional work yesterday, or the day before- Mm... or two weeks before, that some of those checks might not have cleared, or maybe a deposit is waiting in transit. You certainly should know what's happening with your cash, right?

Mm. And- That's important, yeah... I

think it's challenging because some of my clients, they'd rather look at the bank, okay? Yeah. And you know what? I can't tell them not to, 'cause, 'cause they're the client. Right. But I can tell them- Right... you might want to look at the balance sheet. Mm-hmm. It's up to date by every Friday.

Yep.

Okay? And but if you're using QuickBooks to produce financial statements and send information to tax professionals, monitor expenses, track profitability, or make decisions, you need to have confidence in the accounting records, too. It is. And reconciliation is one of those ways of establishing that confidence.

Yeah. So checking the bank answers how much money does the bank have, how much money does the bank say I have? Reconciling answers, does my accounting system agree with the bank?

Spot on.

Yeah. So good. So let's make this ridiculously simple, 'cause this is one thing we love to do on this podcast for our listeners, for you, is make it simple, because I also need simple, and that is how I'm learning. So let's say I start the month with $10,000 in checking. During the month, I receive $5,000 from customers. I spend $3,000. The bank statement ends at $12,000. At a really simple level, QuickBooks should- Ultimately reflect that same reality, shouldn't it, Papa?

Yes.

Yeah. Ooh.

Yes, assuming we're looking at the transactions that cleared and everything is properly recorded.

But let's say I accidentally entered one of those $1,000 expenses twice. The bank still ends at $12,000, but QuickBooks could make it look like I have only $11,000 because I told QuickBooks I spent another $1,000 that didn't actually leave the bank.

Right.

Right. And that could also make my expenses look $1,000 higher and my profit look $1,000 lower, couldn't it, Papa?

Exactly. I mean, people look at profit. Profit's a, a good number to look at.

Yeah. Yes, absolutely. You actually want to know how much the business actually is making, is in the black or is in the green, right? Is actually producing money. We don't want to be in the red.

Mm.

All those expenses, you know, bring your profitability down. That's right. Okay, that's so good, and that's why this isn't just about the bank balance. The one duplicated transaction can start affecting how I interpret the entire business, can't it, Papa?

Absolutely.

I think this might be the big takeaway from today's episode. We spent a lot of time recently talking about getting QuickBooks organized. We've talked about the chart of accounts. We've talked about transactions. We've talked about bank feeds, but ultimately, none of this is about having a pretty QuickBooks file. The goal is that QuickBooks should tell the story of what is actually happening in your business. That is why you have QuickBooks.

That's right.

Yeah, and reconciliation is one of the ways we test the story to see if the story is true.

Yes, because you're comparing QuickBooks to an independent record.

Mm.

The bank statement, and if they don't agree, you've got something to investigate.

Right. Okay. So before we wrap up, let me make sure I've got today's lesson. Number one, a connected bank feed does not mean your books are reconciled. The bank feed helps bring transactions into QuickBooks. Reconciliation checks whether the final result agrees with the bank. Number two, reconciliation can uncover very ordinary mistakes, duplicates, wrong bank accounts, transactions that don't belong, payments that aren't matching correctly. Those are exactly the kinds of things you ran into when you were doing the reconciliation that inspired this episode. And then number three, getting to zero matters because it tells us the activity we're reconciling agrees with the bank statement. If it doesn't certify every single accounting decision in the QuickBooks file, but it gives us confidence that this particular bank activity agrees. And then number four, the point isn't reconciling for reconciliation's sake. The reason we're doing this is so that when we pull a profit and loss balance sheet or some other report, we have greater confidence in those numbers we're using to run the business. Papa, did I get it all? Which was quite the mouthful.

You're amazing. Uh, yes, you did get it. You got it.

Wow. So good. Okay, so here's your challenge for this week, our listeners, our lovely listeners. Your challenge is pick one business bank account in QuickBooks, find the most recent bank statement, and ask yourself one question: When was this account last reconciled? If you're current, great. If you're not current, don't ignore it. Find out where things stopped lining up. And if you're not even sure whether your accounts are being reconciled, that's something you need to know, because knowing how much money is in your bank account is one thing. Knowing that your QuickBooks actually reflects what happened in the bank account is another. So if today's episode is making you wonder, "Okay, what else should I be checking inside of QuickBooks?" We have something that can help you, and we created it, and it's free. It is our free QuickBooks Clarity Scorecard to help you take a step back and look at the health of your QuickBooks file, because reconciliation is really just one part of the bigger question we've been asking over these last several episodes. Can you trust your QuickBooks numbers? If you're not sure, start with a scorecard. It is so good. I spent so much time on this, and I know it has so much value, and it has had so much value for our customers, for our listeners. If you're not sure, start with a scorecard. We'll put it in today's show notes, or you can head over to our website at Lee Davis and Company to find it on our website there. And Papa, this conversation is also a great example of something we've been working on behind the scenes because there is a big difference between somebody telling you, "You should reconcile your bank account," and actually understanding what you're looking at when something doesn't work, isn't it?

Absolutely, Erica. I was just working with a client when we were looking at her balance sheet and her income statement, and quite frankly, her accounts haven't been reconciled for years. And it's nothing to be ashamed about.

No, I'm saying that.

It's just about saying how... Because she's got big plans to move her business forward. Mm.

And

she's been using part of QuickBooks very well. Mm. But her reports are not accurate. Mm. So what should she do? We can help her with those kinds of choices.

Yes, absolutely. This is what we're here for, and this is why we're building out more in-depth QuickBooks training that doesn't just tell business owners where to click. We want you to understand what you're doing, why you're doing it, what to look for, and how all the pieces work together. We'll have much more to share about that as we get closer, but for now, start by asking yourself Does my QuickBooks actually match my bank account? And next week, we're going to stay right in this idea of fixing things when QuickBooks doesn't look right. We're going to talk about some of the different tools QuickBooks gives you for making corrections, credit memos, vendor credits, journal entries, and the bigger question, when something needs to be fixed in QuickBooks, how do you know which tool you're supposed to use? So make sure you subscribe wherever you listen to podcasts so you don't miss this conversation, 'cause it's going to be a good one. Yeah. So Papa, is there anything else you want to leave our listeners with today?

Just don't assume your books are right because your bank account is connected. Right. Of course, you know, we've talked about this before. I'm not a big advocate of the bank feed being set up right away. Mm. I want people to get trained in QuickBooks.

Yeah.

And, and take your time to reconcile your bank account.

Mm. Yeah.

If something doesn't agree, find out why.

Right. Get

to

the root. And,

and ask yourself what actually happened.

Yes.

Uh, and that's how you'll develop confidence in your numbers.

Yes. That is what I love, getting to the root at things, and I feel like that is one thing we do really well on this podcast, is helping our listeners to get to the root of things. So listeners, get to the root. Don't give up. You can get there. I believe in you. I think this is the perfect place to end. If today's episode was helpful, we'd love it if you would subscribe to QuickBooks Mastery for small business success, and share this episode with another business owner who could use a little more clarity around their QuickBooks. You can also visit us at leedavisandcompany.com for more resources and to grab your free QuickBooks clarity scorecard. Thanks for hanging out with us today. It was a blast. You guys, we just love this, and we are having so much fun doing this journey with you, doing QuickBooks life with you.

Thanks, everyone.

Absolutely. So we'll see you next week. Bye for now. Thanks for tuning in to QuickBooks Mastery for small business success.

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