Bank Reconciliation Melissa Wood Consultant What We’ll Cover

1. What is the definition of a bank reconciliation?

2. What is the importance of a bank reconciliation in running a business?

3. Setting up a G/L Cash Account (Main Menu > General Ledger > Maintenance > Accounts)

4. Setting Control Files (Main Menu > Tools > System > Controls)

5. Reconciling Cash Accounts

6. Creating Journal Entries

7. Saving vs. Reconciling

8. Running a Bank Reconciliation Report

9. Not Balancing? Here are some things to check.

10. Refrain from doing these things

11. Reconciling Credit Cards

Bank Reconciliation What is the definition of a bank reconciliation? A process that explains the difference between the bank balance shown on a bank statement and the amount in each company’s cash account at a particular point in time, typically at month end. What is the importance of a bank reconciliation in running a business? A bank reconciliation helps you to know your true cash balance at any time, by uncovering discrepancies such as:

• Checks cashed by the bank for a different amount than was issued (bank mistake)

• Deposits made but not recorded (software user mistake)

• Automatic withdrawals not recorded (software user mistake)

• Payments taken without company’s knowledge (fraud/theft)

• Un-cleared checks and deposits (aka float)

The bank reconciliation feature in FOUNDATION is called “Reconcile Cash Accounts.” To access it from the Main Menu, go to General Ledger > Daily > Reconcile Cash Accounts.

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Setting up a G/L Cash Account (Main Menu > General Ledger > Maintenance > Accounts) The very first thing you need to do when you have new bank account or when you set up your G/L accounts in FOUNDATION is to make sure that your Account Type setting is defined. Your options are “Checking,” “Savings,” or “Credit Card”. This setting is how FOUNDATION knows if an account needs to be reconciled. If you do not define this field properly in your initial setup, the entries that hit that account will not flow to the Reconcile Cash Accounts feature. Please note that this is not retroactive.

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Setting Control Files (Main Menu > Tools > System > Controls)

1. G/L Controls; G/L 1 Tab - Enable “on the fly” Journal Entry

This feature when enables allows the user to add a journal entry while within the Reconcile Cash Accounts feature.

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2. A/R Controls; A/R 3 Tab

This feature allows you to condense all cash receipts on a particular day to one amount. This is great for reconciling the cash account but it does create extra setup every time you record a cash receipt, as you also need to record a bank deposit. This is great for companies that get a large number of checks every day. It is not ideal for companies that only get one or two checks per day.

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Reconciling Cash Accounts When you receive your bank statement at the end of the month, you are ready to reconcile your cash account. Before you start, ask yourself:

• Have I entered all my electronic withdrawals?

• Have I entered all my deposits?

• Have I post all my interest and bank fees?

• Have I posted all my manual checks?

• Does my Reconciliation Report match my G/L Balance? o If the numbers do not match, contact Support at 1-800-246-0800. o If the number do match, continue with bank reconciliation

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1. From the Main Menu, go to General Ledger > Daily > Reconcile Cash Accounts. 2. In the Cash Account field, select the appropriate cash account. 3. In the Begin and End Date fields, enter a date range. 4. In the End Balance field, enter the bank ending balance. 5. If you do not want to see transaction dated after the statement date, disable the Include Transactions

Dated after Statement Date checkbox. 6. Click the [Save Criteria] button. 7. Click the [OK].

8. Check off all checks, deposits, EFTs, and back fees that have cleared the bank. The goal is to get the

difference to be zero. 9. Clear ranges of payments and/or checks.

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Creating Journal Entries In FOUNDATION, you have the ability to create journal entries “on the fly” from the Reconcile Cash Accounts window.

Please note the following when creating a journal entry from the Reconcile Cash Accounts window:

• Be aware of the journal type.

• Only use G/L journal to create entries where both the debit and credit hit the Balance Sheet. Never create journal entries for A/P, A/R, E/Q, or I/N. If you need to make entries to these modules, the entries need to be done within the modules to keep them in balance. FOUNDATION will warn you, but it will allow it because that is how we enter beginning balances.

• If you use the G/L Journal, it may not hit your job cost if the offsetting account is going to a job even though it lets you enter a job. If you need the offsetting entry to hit a job, use the General with Job Costing (G/J) journal to ensure the G/L and J/C stay in balance.

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Saving vs. Reconciling If you have entered all of the information you can but you aren’t done, you can save your changes by clicking the [Save] button. You should only click the [Reconcile] button if your difference shows zero and you want to complete your bank reconciliation.

Also note that you use to find a transaction amount.

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Running a Bank Reconciliation Report 1. From the Main Menu, go to the General Ledger > Reports > Bank Reconciliation History. 2. In the Cash Account field, select the appropriate cash account. 3. In the Reconciliation Date Range and To field, enter the appropriate date range. 4. In the Bank Statement Balance field, enter the bank ending balance. 5. In the Print Detail field, select the level of information you want to include. Your options are:

• “Summary Only”

• “All”

• “Reconciled Only”

• “Outstanding Only” 6. Print/save a copy, attach it to a bank statement, and file it.

Not Balancing? Here are some things to check. • Can you divide the difference by 9? If so, you may have a number transposed. • Double check the Reconciliation Report against your bank statement. Are you missing anything? Did you

clear all the transactions? • Did you enter the bank ending balance? Sometimes people make a mistake here and enter the wrong

amount. • Are the reconciliation dates correct? • Was there a check voided in a prior month that was already reconciled? Major problem. Never void

reconciled transactions. • Is there an item that clears in the current month but is recorded in FOUNDATION in the next month? If so do

the debit/credit cash trick o Create a journal entry for the amount, debit and credit the cash account, but only clear one of the

transactions. Then, the next month it washes out when you clear both the debit and credit. • Is it possible that your payroll information is secured for the user and they cannot see P/R-related

transactions?

Refrain from doing these things • Entering cash history – This program is only used for the first bank reconciliation when you go live. It is to

enter your opening balances and checks that have not yet been cleared. Never use this program again. It does not hit the G/L and can cause issues if misused.

• Purging Journal Entries

• Voiding Checks that were already reconciled

• Reconciling more than one month at a time

• Reconciling every single day

• Using dates other than the beginning of the month to end of the month

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Reconciling Credit Cards A) If you do not pay A/P invoices with a credit card, you need to set up a vendor for each card and enter

invoices for that vendor the regular way. You will charge costs to proper expense accounts, then pay the vendor as you would any other vendor. 1. Enter A/P invoices as usual.

a. Debit the expense account. b. Credit the A/P account.

2. Select invoices for payment, selecting “Check” or “EFT” as the Payment Type. 3. Print, list, and post payments, selecting “Check” or “EFT” as the Payment Type.

a. Credit the cash account. b. Debit the A/P account.

B) If you do pay A/P invoices with a credit card, you may want to reconcile credit cards with the same

process. This process is slightly more involved, but it does work if followed impeccably. Make sure you have a vendor set up for each credit card, you have a G/L account set up for each credit card, and that the G/L Account Type is “Credit Card.”

1. Enter A/P invoices as usual. a. Debit the expense account. b. Credit the A/P account.

2. Select invoices for payment, selecting “Credit Card,” as the Payment Type. Select the credit card account you want to use to pay the invoices

3. Print, list, and post payments, selecting “Credit Card” as the Payment Type. a. Credit the liability account (in lieu of Cash). This is a payment in bank rec. b. Debit the A/P account.

4. At some point in the future, you are going to pay the credit card company for the charges. At that point, you will enter the credit card charges using an A/P invoice, but instead of hitting the expense account, you need to hit the liability account.

a. Debit the liability account. This is a deposit in bank rec. b. Credit the A/P account.

5. When you are ready to pay the credit card company, you are going to select invoices for payment using a Payment Type of “Check” or “EFT.”

6. Print, list, and post payments, selecting “Check” or “EFT” as the Payment Type.

a. Credit the cash account. b. Debit the accounts payable account.

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You are essentially entering the charges twice; one time to debit the expense account, and another time to go in and out of the credit card liability account. Keep in mind that it may be a combination of both processes for a card like an AMEX. Part of the fees may be for meals. You won’t have “invoices” for these fees, but you will need to enter them as costs to the meals and entertainment account. Then when you want to pay the bill, you will go back in and hit the liability account.

Part of the other fees will be actual invoices you are paying, for things like materials and supplies, and those invoices are already in you’re A/P Aging. It is a longer, more involved process, but it is necessary to properly record transactions that you pay with a credit card. Often owners of companies will do this to play the “points” game and reap rewards of charging costs to a credit card so they can discounts on travel or purchases.

When reconciling the credit card, you will use the exact same process as you would for cash accounts, as detailed in this document.

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