(Note: I have updated this blog since it was last published)
Reconciling accounts in QuickBooks Online can mean different things to different people. To the small business owner it means working with downloaded bank and credit card transactions. To a bookkeeper or professional, it means preparing a formal bank reconciliation. In this post, I will cover both – working with downloaded bank and credit card transactions and also preparing a reconciliation with the bank or credit card statement.
How to work with bank and credit card transactions in QuickBooks Online
The #1 question I am asked all the time by new QuickBooks Online users is how to work with downloaded banking transactions in QBO. Working with banking transactions in QBO seems simple but there are a few important things you need to know in order to avoid the most common mistakes that all new users make.
Connect bank and credit card accounts to QuickBooks Online
First, add your bank and credit card accounts to the chart of accounts. See my post on adding accounts to the chart of accounts.
Next, connect your bank and credit card accounts to QBO.
From the Left Navigation Bar
Click Transactions > Banking
Click Add Account on the upper right
Enter the name of your Financial Institution or click the Logo of your Financial Institution
Enter your Online ID or User Name.
Enter your Passcode or Password.
The connection process may take a few minutes. A window will appear asking you to map the bank accounts from your financial institution to the bank accounts in your chart of accounts list.
Typically, only 90 days of transactions will be downloaded.
Tip: If you are new to QBO, connect your bank and credit card accounts to QBO the first time you start using QBO. Transactions will download automatically. Even if it takes you a few months to get started with QBO, the banking transactions will be there.
Adding and matching downloaded banking transactions in QBO
To add or match downloaded transactions, go to the Left Navigation Bar and click Transactions > Banking.
The Banking Center window will open. Click on the bank or credit card account you would like to manage. In the image below, the Checking account has been selected and there are 25 transactions that have been downloaded.
Click the “New Transactions” tab to accept, exclude, or modify transactions. When you “accept” transactions they are posted directly to the bank register in QuickBooks.
To modify a transaction, click the transaction. A window will open to show you more details of the transaction.
It is important to verify that each transaction has a Name (vendor or customer) and Account (Category) from the chart of accounts list. Memos (descriptions) are always helpful.
Click Add to post a single transaction or Split to allocate more than one account from the chart of accounts list.
After verifying that transactions are assigned a name (vendor or customer) and that they have been assigned a category – place a checkmark on all transactions you would like to accept, click Batch Actions then click Accept Selected.
If you have already manually entered banking transactions in QBO and then download them from your bank, you will see that QBO will show that the downloaded transactions are marked at “Matched” in QBO. Don’t worry, these transactions are not duplicated, QBO already knows that they are entered in QBO. Simply click on “Match” on the right to accept these transactions.
- Downloaded transactions do not replace bookkeeping – it’s only a tool to help you save data entry time – this is a common misconception among new QBO users. They think that bookkeeping is only about downloading banking transactions. There is a lot more to doing proper bookkeeping for your business.
- Downloaded transactions are not added into QBO until you “accept them” (as I showed you in the previous section). You control the process. Just because you download transactions into QuickBooks it doesn’t mean that they are entered into QuickBooks. You must follow the process of accepting transactions into QBO.
- Work on one account at a time – this way you don’t confuse transactions.
Each and every downloaded transaction should have the correct vendor/company name and the Category (an account from the chart of accounts) assigned to it. The #1 mistake I see new QBO users make is that they start accepting transactions into QBO without verifying that each transactions has a name and category assigned. If QBO shows an expense as Uncategorized Expense or a deposit as Uncategorized income – it is only because QBO doesn’t know how to categorize the transactions. That means that you need to assign the proper expense or income category before accepting the transaction into QBO. Otherwise, your reports will show Uncategorized Income and Uncategorized Expense and you’ll have to spend a lot of extra time re-categorizing each transaction.
- Downloaded transactions are not normally duplicated if you have already entered transactions manually into QuickBooks. QuickBooks identifies these transactions and knows not to duplicate them. Review carefully – dates and amounts should match.To learn more about the common mistakes that new users make with banking transactions, read my post How to avoid making a mess in QuickBooks Online.
5 Minute Bookkeeping with downloaded banking transactions
Doing 5 Minute Bookkeeping is super easy when you work with downloaded banking transactions. I recommend that you spend 5 minutes a day working with your downloaded banking transactions. You’ll be amazed at how quickly you will be done!
Reconciling bank and credit card accounts in QuickBooks Online
You may be wondering, aren’t you reconciling your banking transactions when you add and match transactions in QBO from the Banking window? Actually, no. While you think that you are “reconciling” transactions, there is actually a formal process of reconciling transactions to a bank or credit card statement that is totally different.
What is a bank reconciliation?
A bank reconciliation is the process of ensuring that all transactions on the bank (or credit card) statement are in agreement (“reconciled”) to the transactions in QuickBooks Online. It is the only way to ensure that all transactions are reflected in QBO.
To get meaningful reports
- Preparing the bank reconciliation in QuickBooks Online is one of the most important things you can do to ensure the accuracy of your bookkeeping and to ensure that you get meaningful reports.
The IRS expects you to
- In the case of a tax audit, the IRS expects you to reconcile your bank and credit card accounts
Your accounting professional expects you to (or they will charge you to reconcile your accounts)
- If you ever work with an accounting professional (bookkeeper, CPA, etc), they will look to see if your accounts are reconciled. If they are not, they have to reconcile the accounts in order to ensure the completeness and accuracy of transactions. It can get very expensive if you have been in business for several years and have never reconciled your accounts – your accounting professional will have to go back all those years to reconcile your accounts.
(Click here for the full version of the infographic)
How often should you prepare the bank reconciliation?
You should reconcile your bank and credit card accounts once a month as soon as your statements are available. Here’s a tip for fighting procrastination – add an appointment with yourself every month to get your account reconciliations done.
How long does it take to prepare the bank reconciliation?
It depends on the number of transactions, but generally, reconciliations can take anywhere from 5 minute to 30 minutes.
What should you do before preparing the bank reconciliation?
You should make sure that you have entered or downloaded all accounting transactions into QuickBooks Online.
You also need to download a PDF copy of your bank and credit card statements. I find it easier to print them so that I can mark down transactions that I have matched up in QuickBooks.
How to prepare the bank reconciliation in QuickBooks Online
To get started:
- Click the Gear icon > Reconcile.
- Select the bank or credit card account that you need to reconcile.
- Fill out the Reconcile Statement (If you don’t see the Reconcile Statement window, you or another user has already begun to reconcile that account.) \
To learn more, read this article from the QuickBooks support site.
Reconciling accounts in QuickBooks Online can mean different things to different people. Just remember, you need to learn how to work with downloaded banking transactions and also prepare the reconciliations to the bank and credit card statements.