How do I reconcile accounts in my accounting software?

Which accounts can the reconcile tool be run on?

The answer depends on the software, so check it in your own file rather than guessing from an account's name.

In Sage 50, the tool accepts any account. Sage's help says "Sage 50 allows you to reconcile any account in your chart of accounts." It then narrows the usual use: "Typically, you would reconcile bank accounts, cash accounts (such as petty cash), and credit card accounts." You choose the account in the Account Reconciliation window, and typing ? in the account field lists every account you can pick.

QuickBooks Online frames the tool around outside statements: "Reconciling is the process of matching the transactions you've entered in QuickBooks with your bank and credit card statements." Intuit's article on reconciling an account does not list the account types the tool accepts, so the dropdown in your own file is the authority: open it and note what it offers.

Being able to select an account in the tool does not mean the tool is the right way to check it. The real test is whether an independent closing figure exists for that account.

What do you need before you open the tool?

You need three things.

• The account. It must be the ledger account that the statement actually describes.
• The ending date. This is the closing date printed on the statement. In Sage 50, you "Enter the closing date from the bank or credit card statement as the Statement Date." That date controls what you see: "Only transactions entered up to the statement date appear here."
• The ending balance. This comes from the same statement. QuickBooks Online puts it this way: "After you start a reconciliation in QuickBooks, you need to enter the ending balance from your bank statement." Sage 50 calls it the Statement Ending Balance and says to enter "the ending balance amount included on the bank statement".

If you enter either figure wrongly, you create a difference that no ledger entry explains. When a QuickBooks Online reconciliation does not balance, one of the first checks Intuit sets out is on this figure: "To make sure you entered the correct ending balance for a reconciliation, follow these steps."

What should be true before you start?

Most failed reconciliations fail on their preconditions, not on the matching. Go through this checklist, and stop at the first item that fails.

1. Every transaction for the period is entered. QuickBooks Online asks you to make sure that "all transactions for the statement period have been added and categorized in QuickBooks."
2. Feed items are reviewed. If the account has a bank or card feed, clear the review queue first (see the next section).
3. Postings are current. Sage 50 warns: "If you are using the batch posting method, post your accounts to the General Ledger before you reconcile."
4. The beginning balance agrees with last time. QuickBooks Online checks this for you: "Each time you reconcile an account, you'll check the beginning balance first. It should match the ending balance of your last reconciliation." If they disagree, QuickBooks Online will not let you continue until you account for the difference; the message begins "Your account isn't ready to reconcile yet. Your beginning balance is off by..." On an account you have never reconciled before, the cause is usually the opening balance entered when the account was created rather than a changed transaction.
5. You have the statement in hand. You need its ending date, its ending balance and its line items.
6. Nobody else is posting to this account right now, or you have agreed a cut-off with those who are (see the section on shared files below).

If item 4 fails, fix the beginning balance before you mark anything. Otherwise the difference you see will include an older problem that has nothing to do with this period.

What changes when the account has a bank feed?

A connected feed adds a step between the bank and your ledger. In QuickBooks Online, downloaded items sit in the For review tab, "but they won't affect your books until you match or categorize them." An unreviewed item is therefore not in the ledger, and no amount of marking in the reconcile window will make up for it.

Intuit's matching guidance says: "Be sure to fix all matches before you complete your monthly account reconciliations." If a feed item was matched to the wrong record, the wrong record is what you will be reconciling, so fix the match in the feed first. How a matched feed item is shown inside the reconcile window is not described in that guidance or in Intuit's article on reconciling an account; expect it to appear as the record you matched it to, and check the amount and date against the statement line before you clear it.

In Sage 50, electronically imported bank records "may not have been autocleared by Sage 50," and they "will need to be manually matched to existing Sage 50 records and cleared." If any unmatched imported records are duplicates or bank errors, Sage tells you to delete them.

What does marking an item cleared actually mean?

Marking an item says that the outside record shows it. It is not a judgment that the item looks right. In Sage 50, the instruction is to "Select the Clear check box next to each item that is included on the bank statement."

The mark is a status on the transaction. QuickBooks Online shows it in the register's checkmark column, which cycles "from R (Reconciled) to C (Cleared) to Blank (Uncleared)." Once a reconciliation is finished, its items carry the R: "Reconciled transactions have an " R " in the checkmark column".

The R status is what later reconciliations rely on. In QuickBooks Online, if "A reconciled transaction was edited, deleted, voided, moved, or unreconciled," that "changes the ending balance of your last reconciliation and sets the beginning balance for the next one." So never solve this month's difference by changing an item that a finished reconciliation already covers. That repairs today's screen and breaks the starting point for every period after it. Reversing a finished reconciliation is a separate procedure with its own consequences.

What is the difference figure telling you?

The difference is the gap between the statement's ending balance and the balance built from what you have marked. On a bank account, the balance built from what you have marked is the beginning balance, plus cleared money in, minus cleared money out. On a card or loan account, the statement balance is an amount you owe, so charges add to it and payments reduce it: read the direction from your own account, not from the bank-account example below. Sage 50 "keeps track of how many transactions recorded in the general ledger are cleared, how many are not, and the associated totals."

Here is an example with invented figures. The statement closes at 18,450.00 and the beginning balance is 12,000.00. You have marked deposits of 9,800.00 and payments of 3,275.00, so the built balance is 12,000.00 + 9,800.00 − 3,275.00 = 18,525.00. The difference is 18,450.00 − 18,525.00 = −75.00. The statement is 75.00 lower than what you have marked. A missing 75.00 bank fee would explain it. So would a 75.00 deposit you marked that the statement does not show.

A zero difference is the tool's finish line. In Sage 50, "When all transactions listed on the bank statement are entered and cleared in Sage 50 and outstanding transactions have been accounted for, the unreconciled difference should be zero (0.00)."

A zero shows that the items you marked, added to the beginning balance, equal the outside closing figure. It proves nothing if you reached it by marking items the statement does not show. That hides whichever entry was actually wrong, and next period inherits the problem. Clear an item because the statement lists it, never to make the number move. A zero also proves nothing about the items you left unmarked. Before you finish, read the uncleared list: a duplicate, a stale check or a wrongly dated entry sits there quietly while the difference still shows zero.

What if the difference will not go away?

First, compare every statement line with the marked set. Then work out which of three causes you are facing, because each needs a different fix.

• A book entry is missing, duplicated or wrong. QuickBooks Online's guide has you enter statement items that are missing from the books, and check any case where "you see transactions in QuickBooks that aren’t on your bank statement". Deleting a duplicate is allowed — "If you find obvious duplicates, you can safely delete them." — but only under Intuit's condition: "Only delete transactions if you're absolutely certain they're a duplicate or error. If not, check with your bookkeeper." Where a QuickBooks transaction "can closely match a transaction on your bank statement without being exact", the instruction is to reach out to your accountant, and not to edit transactions, like invoices, that customers have already paid for.
• The figures you gave the tool are wrong. QuickBooks Online tells you to "Review the Ending balance and Ending date." Correct them, and do not change any transactions.
• The beginning balance never agreed. If it differs from the last completed reconciliation, the difference is older than this period. Fix the beginning balance first (checklist item 4). Do not force the current period to absorb it.

If none of these explains the leftover amount, do not book an adjustment to make it disappear. "If you can't find errors in QuickBooks Online, there may be an error with the bank or credit card company," so check the statement itself. If you still cannot find the cause, leave the reconciliation unfinished and take it to your accountant, who "can help you get back on track." Never tick an unsupported item to cover it.

How do you add or fix a transaction without losing your marks?

Finding a missing or wrong entry partway through is normal.

In QuickBooks Online, entering a new transaction is the last resort, not the first move. First, "Check your sales and expense transactions to verify the transactions you see on your bank statement, but not in QuickBooks." If you find the item, open it and "Check the Deposit to or Payment account. Make sure the transactions are in the correct account." Only when nothing turns up does the instruction become: "Enter any transactions that you see on your bank statement but not in QuickBooks as new sales receipts or expenses."

Sage 50 builds this into the window. You "Click Add New to enter adjusting journal entries, checks, or receipts that the bank statement included but which are not included in Sage 50" general ledger. Then, "Once the adjustment is entered and saved, you can close the transaction window and return to Account Reconciliation." After that: "If you added new items, select the Clear check box next to each of these items." Interest and service charges from the statement can be entered in the lower part of the window, and Sage saves each one "as a general journal entry."

Correcting a transaction's date or amount is less well documented. Neither Intuit's article on fixing issues at the end of a reconciliation nor Sage's reconciliation page describes making that correction from the register, or what either platform does to the marks already made when an open transaction is edited, so make the correction the way your own product documents it and re-check the marked items before you finish. Whatever route you take, "You shouldn't edit transactions, like invoices, that customers have already paid for." If an item is missing from the Sage 50 list because it was dated after the statement date, remember that only transactions dated up to the statement date are listed.

How do you pause and pick up later?

Sage 50 keeps your work: "If you are interrupted during the middle of reconciling, click OK" and exit the window. "Later, you can resume where you left off. All your cleared items and other reconciliation information for the account will remain."

Saving an unfinished reconciliation is not documented in Intuit's article on reconciling an account, and neither is how partly marked items are held between sessions. If your window offers a save option, use it; if it does not, finish the session or be prepared to start again.

What happens when you finish?

In Sage 50, "When you have successfully reconciled the account (the unreconciled difference is zero), click OK to close the window." Sage's reconciliation page names a report — "Read about the Current Account Reconciliation report" — but does not describe what completing stores or what changes on the marked items, so open that report in your own company file to see what it records.

In QuickBooks Online, "Each time you finish reconciling, QuickBooks Online automatically generates a reconciliation report for that session." The report shows "Beginning and ending balances." It also lists "which transactions were cleared and which were left uncleared when you reconciled." It does not change later: "This is a static report." The finished ending balance is what your next reconciliation's beginning balance must match.

Keep the report with the statement. As AccountingTools advises, "always retain the reconciliation detail for each account, not only as proof, but also so that it can be used as the starting point for account reconciliations in subsequent periods."

What if the account has no statement?

The tool needs an independent closing figure. Where that figure comes from decides whether a zero difference means anything.

• An outside statement exists. This covers bank, card and loan accounts. Use the tool as described above.
• An internal schedule supplies the figure. Balance-sheet accounts still need checking: "An account reconciliation is usually done for all asset, liability, and equity accounts." The support is a listing you produce yourself. For receivables, "the balance in the account should exactly match the total of the open accounts receivable report." In Sage 50 you can run the tool against that total. But the figure is only as good as the schedule, so check the schedule too.
• No independent figure exists. The tool has nothing to check against. Any number you type in simply restates the ledger, so a zero proves nothing. Instead, go through the account's detail entry by entry, which AccountingTools calls a documentation review: "review the appropriateness of each transaction listed in the account."

What changes when several people work in the same file?

When others post while your session is open, the list of items and the difference can change even though you did nothing. This can look like a software fault, but it is not.

Before you start, agree a cut-off with the others: no postings to this account, dated on or before the statement date, until you finish. If the difference moves unexpectedly, look for entries added or changed since you opened the session before you mark anything else. In Sage 50, the batch-posting warning above applies too: post first, so that the list reflects what has been entered.

Who can reconcile, and what is recorded about it?

In QuickBooks Online, each user is given a role, and the role sets what that person can do: Intuit tells you to "Assign roles to people on your QuickBooks Online plan roles to define what they can see and do with to your company data." For this task Intuit states the permission plainly: "You need admin access to view and edit reconciliations." If the reconcile option is missing or blocked, that is the access to ask the company admin about. For Sage 50, the reconciliation page does not describe user permissions; check the user security settings in your company file or ask whoever set it up.

Note on the reconciliation report who prepared and reviewed it, since neither Intuit's article on that report nor Sage's reconciliation page states what the software records about who completed the reconciliation. AccountingTools' advice to assign the work to a senior accountant, because "More experienced accountants are in a better position to detect errors, as well as the reasons why they occurred," is written for an accounting department that reports anomalies "to the controller or CFO"; in a smaller business it means the most experienced person available does the reconciliation.