Hi there, Creative. I see you. You hate bookkeeping. It's boring and tedious, and you have better things to do. So now that your numbers aren't adding up to reconcile your bank account, you just want to throw your computer out the window.
Take a breath, I get it. I've managed the books for 20+ different business entities of varying size and industries. Yet, no matter the business, a bank account that won't reconcile feels like a personal attack.
Today's post is a troubleshooting resource for you to hopefully speed up the error-hunting process, so you can get those numbers to match up and move on with your life! (Until next month, that is...sorry.)
First off, let's talk about reconciling. Some of you know about reconciling your bank account from the checkbook days. But millennials-and-under aren't likely to have ever learned that.
Personally, I didn't know what it meant to reconcile until college. So, if you're in the same boat as I was and have no clue what I'm talking about, here's a fun colorful diagram I put together to try and explain what's happening:
Essentially, we're making sure that both your records and the bank's records have the same numbers (and smart record-keeping requires that you have records separate from your bank's records).
So the bank takes the beginning balance they have on record, plus all the deposits they have on record, minus all the withdrawals they have on record, and net that out to equal the ending balance. Simple enough, right?
Well, you tell your bookkeeping system what the starting balance is (or it rolls over from a previous month, depending on how old your records are). Then, your bookkeeping system, whether it's software or a manual pen-and-paper system where you use a calculator, adds and subtracts the transactions it has on record.
In theory, the ending balance your system comes up with should match what the bank has, which means that all bank-related transactions have been properly and accurately accounted for.
But sometimes, this doesn't happen. Sometimes, you can't reconcile, and you've got to do some troubleshooting. Today's post is a little troubleshooting guide to help you speed up this process.
In my day job as a staff accountant/bookkeeper, I've reconciled accounts plenty of times. These are the most common issues I've come across when those accounts don't want to cooperate.
Simply put, you might have entered the wrong balance. Whether you're using paper or software, make sure you're using the exact ending balance that the bank statement reports.
And on that note, also check the starting balance. If you reconciled in a previous month, your starting balance and the bank's starting balance should be the same (after all, they were last month's reconciled ending balances). However, if you accidentally made any changes in your records with the previously reconciled month's dates, that will throw off your starting balance.
Once you reconcile an account, there should be no further transactions that impact the bank balance prior to the reconciliation date. Once you reconcile, you're dusting off your hands and saying "Everything in this bank account has been properly recorded and accounted for. No changes need to be made that affect the dollar amounts within this account."
Some banks have weird closing dates for their bank statements. If you told your software you're reconciling the bank as of 5/31 but your bank issued a 5/29 bank statement, the software is including transactions from the 30th and 31st.
The problem is, your bank only went up to the 29th! They're going to include the 30th and 31st on your next bank statement.
This one got me way too often, and it always took me way too long to find during my troubleshooting. It's so stupidly simple, so make sure you look for this before digging further.
Missing or Duplicated Transactions
The next easiest thing to look for is a missing or duplicate transaction. Depending on your software, you may be able to sort your transactions for the month by amounts - if you see two of the same amounts side by side, it could be a coincidence, recurring transaction, or a duplicate.
Also, you can try searching your bank records for the difference that you're off by. If you're lucky and it's just one missing transaction, you'll find the transaction with the exact amount you're looking for.
If you're missing multiple transactions, however, you're going to have to start the line-by-line check.
It's possible you messed up the amount of a transaction, whether as a typo (manual entry) or an accidental change (imported entry). This is very much a line-by-line process, but it's a necessary evil.
One thing you can do is check for a transposition error. Don't ask me to explain the math, but if you accidentally swapped two numbers next to each other or left off a 0 at the end, the difference will always be divisible by 9. This can be a quick way to verify that it's simply a typo - you'll still have to find the typo, but it can rule out some of the other possible reasons for an unreconciled account.
So, examples of transposition errors at work:
You accidentally typed 86 as 68.
(86 - 68) / 9 = 2
You accidentally typed 1,652 as 1,562.
(1,652 - 1,562) / 9 = 10
You accidentally left off the zero from 145,680.
(145,680 - 14,568) / 9 = 14,568
You accidentally left off the zero from 600.
(600 - 60) / 9 = 60
It kinda boggles my brain with how that works, but it's nifty to learn. Bankers, accounting firms, brokerages, and all sorts of financial industries use this trick to find errors, so now you know it too!
Manual & Journal Entries
If you're manually entering in all of your transactions, there's a lot of room for typos to occur. If you're automatically downloading transactions straight from your bank (which I can teach you how to do for free with Wave), there are a lot less chances for a typical entry error.
But, even if you're importing data, bookkeeping sometimes requires further adjustments with manual transactions and/or Journal Entries. If you don't understand debits and credits and double-entry accounting, you probably should consult someone (someone like me?) before posting any Journal Entries to your books.
Regardless, if you have made any additional Journal Entries or if you've added manual transactions (for example, to reflect business expenses paid with your personal money), it's possible you assigned that transaction to your bank account.
If you have a Journal Entry touching the bank account, you need to have a very good reason why - especially if your software imports data. Theoretically, everything should already be accounted for with the import.
If you need to reflect a financial event in your books but don't know how, send me an email (firstname.lastname@example.org) and I'll see if I can help you write the correct Journal Entry.
Remember that when any transaction is being attached to your bank account's data, you're telling your software that cash is moving. If that's not the case, then you need to find the correct Account type to assign your transaction to.
Now we're in the territory of least-likely scenarios, but still possible. For one, the software could have experienced a glitch of some sort with the import. In this case, you would hopefully have found the error while checking for missing/duplicate transactions or incorrect amounts.
The other possibility is bank error. If you've exhausted all your resources, it is possible that your bank made a mistake. It happens, probably more than you'd really like to know! If you think this is the case, get a second set of eyeballs first. Then, collect your supporting documents and give your bank a call. Most banks are willing to work with you if you have a question or think there's an error.
Have a Routine
Reconciliation errors are extremely common. And, they're not even the only way to discover an error with your books. Reconciliations are only a way to verify that the cash has been accounted for, but there's more than cash involved with accounting and finance!
Regardless, it's a tremendously important measure to take, and it should be done on a monthly basis. If you're not already scheduling bookkeeping, budgeting, and Budget Meeting times with yourself, now's the time to start! Learn more with the resources below:
RELATED POST: Hosting Your Own Solopreneur Budget Meeting
RELATED POST: How to Create & Follow a Monthly Budget for Your Blog
FREE VIDEO TRAINING: Bookkeeping: The Simple & FREE Method
Let me know in the comments, have you had any other reasons behind a failed reconciliation? Any other troubleshooting tips to help your fellow entrepreneurs find their errors faster? Share them below!
Until next time!
- Katie Scott