Kash is King - The Official Kashoo Blog

Accounting, business and technology insights for those who are blazing their own trail to success.

What is Bank Reconciliation?

Posted by Kashoo Team on October 28, 2013 at 12:39 PM

One of the most frequent questions we hear from our customers is, "What is bank reconciliation?"

And if you are new to the world of accounting then there is a pretty good chance that you do not know either. But it's OK! Kashoo is here to help!

At a basic level, bank reconciliation is a correlation between what shows up on your bank statement and what you have recorded in your accounting software.

Why does this correlation matter, you ask? Well, if there is one pure truth in accounting it's that errors happen. Invoices get forgotten. Deposits get lost. Any number of things can (and will) happen. Bank reconciliation adds a valuable layer of error detection and provides you the ability to correct those errors in your accounting system. Doing a monthly bank reconciliation will help prevent these accounting errors and build your confidence in your bookkeeping abilities.

So how do you start? As mentioned, on a monthly basis, take your bank statement and match the transactions listed against the records in your accounting software. If something does not match up or is in one but not the other then you know something is amiss and can take the appropriate actions to rectify the situation.

That doesn't sound so bad, does it? Well, it's even easier in Kashoo...

Performing a bank reconciliation by importing your data into Kashoo

1. Login to your online banking system and download your monthly statement in one of the many formats supported by Kashoo. Alternatively, if your bank is supported, you can hook your Kashoo account up to your financial institution so that your transactions will be imported automatically.

Depending on which financial institution you bank with, different formats will be available for download. Kashoo supports Microsoft Money (QFX), Quickbooks (QBO), Quicken (QFX), CSV, Excel and QIF files. Kashoo has great coverage of these formats and it is almost guaranteed that your bank will offer one of those listed.

If you would like to see if the automated bank feed feature will work with your financial institution please follow the automated bank feed instructions.

2. If you have setup an automated bank feed then you can go ahead and skip this step; otherwise, it is time to upload your transactions into Kashoo.

Instructions on how to upload the various formats can be found at the following links:

3. Once your transactions have been entered into your account you can follow these steps to complete you bank reconciliation.

  • Go to the Banking page by clicking the Banking link in the sidebar.

Bank Reconciliation Menu Item

  • Next, select the bank or credit card account that you wish to reconcile. As part of this process you will also want to select the statement date which is the end date of your monthly statement (or the date of the last transaction on your monthly statement).

SelectAccount

  • Before you get going, it's a good idea to verify that the opening balance in Kashoo matches the opening balance on your bank/credit card statement. If for some reason these opening balances do not match then you will need to redo the previous statement, and possibly the one before that, until you find the mistake.
  • All of your transactions have now been imported into Kashoo and you should see them as a list on this page. Beside each one of these imported transactions you should also see a set of possible matches that are created from the transactions you manually entered into Kashoo over the course of the month. These matches are made when the transactions have the same total amount and the same date (or earlier). If it has not been done for you, you can click the checkbox and select the matching transaction that has not been cleared yet.

Matched Transactions

4. If one of the transactions that you imported has not been entered into Kashoo yet you can choose one of the three options available by clicking on the appropriate checkbox.

  • Add Expense or Add Income: select this option to add the transaction into Kashoo without having to leave the bank page. That is, this step will create the associated record within Kashoo.
  • Add Transfer: select this option if the transaction is a transfer into or out of the account. Common transfers include a transfer out of a bank account to pay a credit card or a transfer into the credit card account from the bank account.
  • Remove from Bank Statement: select this option if you do not want to enter your transaction into Kashoo.

ImportedTransactions

5. If one of the transaction you have entered matches the transaction on the bank statement, check off the box to match the transaction inside Kashoo. Things can get a little tricky for bank deposits that contain cheques from more than one customer. In this case you will need to work with the Undeposited Funds account.

NOTE: if you are tracking sales taxes that you have paid, always use the negative tax function when applying sales taxes. The reason we do this is because the amount shown in the bank statement will include any sales taxes charged. This same principle applies for taxes that you have collected. For instructions on how to set up your taxes, please visit the help article on tax setup instructions.

7. Once you have finished matching all of your transactions with an income/expense account you will see a list further down the page that shows the transactions as they are matched between your statement and what is inside of Kashoo. If there are transactions left unchecked on this list they may have been recorded incorrectly or the same transaction may have been recorded twice.

8. Finally, the ending balance shown at the top should now match the ending balance on your bank statement; if not, something is wrong and you will have to double-check your work. To help trouble shoot any problems you can always visit Kashoo Support or contact us directly for help.

9. When you are happy with everything click Save to complete the bank statement reconciliation. The transactions will be put in a file and you can always come back later if you need to change something.

Performing a bank reconciliation without importing your bank data into Kashoo.

1. If for some reason you are unable to, or do not want to, import your banking data into the Kashoo accounting software you can always do things the old fashioned way. Follow steps 1 through 3 from above and use your printed bank statement to compare with the transactions in Kashoo instead of using manual or automatic bank transaction upload.

2. Check off all of the transactions in Kashoo that appear on your bank statement and, at the same time, check them off on the physical statement. Once your are done checking everything off you can then add any transactions into Kashoo that are still on your statement.

Phew! If you've made it this far, there is a good chance that you know something about bank reconciliation, and how to perform it in Kashoo. As always, feel free to contact us with any questions: answers@kashoo.com, @KashooOnline, 888-520-5274.

Topics: Bookkeeping, Accounting, Kashoo Accounting