Understanding how to reconcile credit cards in QuickBooks is essential for accurate bookkeeping. By reconciling credit cards, users can ensure that the transactions recorded on their credit card statements match the corresponding entries in their QuickBooks account. In this guide, we will provide step-by-step instructions to make the reconciliation process easier. We will also explore what reconciliation is and why it is important for maintaining financial accuracy.
What do you understand about Credit Card Reconciliation?
The survival and long-term growth of any successful business depend on maintaining accurate financial records. Proper accounting is not just essential for business growth but also a legal requirement that companies must understand and follow.
One frequently recurring task for finance teams, although not the most enjoyable, is credit card reconciliation. Credit card reconciliation is a system used by accountants to ensure that all transactions on a credit card statement match the company’s financial records.
In simpler terms, accountants compare the company’s credit card statements with the general ledger. If all payments in the ledger correspond to those on the statement, the ledger is considered accurate. However, if discrepancies arise, the financial controller must investigate their causes.
Generally, the financial reconciliation process occurs on a monthly, quarterly, or annual basis, with larger organizations conducting closing exercises annually.
Suggested Reading: Credit Card Credits in QuickBooks
Why is Credit Card Reconciliation Important?
Reconciling credit cards is crucial, as it reflects a company’s financial health. Reconciliation utilizes additional documentary evidence, such as bank statements, receipts, and credit card statements, to verify the accuracy of the company’s books.
This process is even more critical during an audit, as the tax office or third-party auditors require proof of every payment. Without proper documentation, a company may fail an audit, leading to missed investment opportunities, legal issues, and negative consequences for the business.
It is important to note that banks and credit card processors are human and prone to mistakes, making it unrealistic to expect their statements to be consistently 100% correct. However, there is no need to stress over the reconciliation process, as accounting automation software like QuickBooks simplifies and streamlines the task.
QuickBooks streamlines reconciliation, making it a less time-consuming task. With over 3.4 million small businesses utilizing QuickBooks, it is a popular accounting automation platform designed to be accessible, even for non-finance professionals. QuickBooks provides better financial management by automatically updating data from Magento to QuickBooks in real-time.
Additionally, it integrates seamlessly with major payment providers like PayPal, Square, and Stripe. Retail and eCommerce companies can automate payment tracking with ReconcileBooks after a simple setup process.
What are the important things to remember about the Credit Card Reconciliation Process?
Reconciling your credit card accounts involves comparing your ending statement balance to the transactions in QuickBooks. This process often encounters errors such as:
- Missing Transactions: If transactions from your statement are not entered into QuickBooks, they must be added before reconciling the account.
- Incorrect Amounts: If the transaction amounts in QuickBooks differ from those on your bank statement, the account cannot be reconciled.
- Duplicate Transactions: By reviewing the transactions, you can identify duplicates that are not present in QuickBooks.
- Erroneous or Fraudulent Charges: All charges entered into QuickBooks should be scrutinized to ensure their legitimacy.
How to Reconcile Credit Cards in QuickBooks?
So, in total there are five steps included to Reconcile Credit Cards in QuickBooks. We will guide you step by step to explain how credit cards in QuickBooks work.
- Navigate to the QuickBooks Credit Card Reconciliation Screen:To begin, open the QuickBooks Credit Credit Reconciliation Screen. To do this, place your cursor over “Accounting” in the left menu bar and select “Reconcile.”
2. Choose the Account and Input your statement information: To demonstrate the general process of reconciling credit cards in QuickBooks, we will utilize the provided short credit card statement as an example.
Now once you finished the first step, you will find the following reconciliation screen:
A= Choose Account: First, select the credit card account you want to reconcile.
B= Last Statement Ending Date: When reconciling your credit card account, the date of the last reconciled statement will be indicated here. If this is your first reconciliation, this information will not be available.
Please note that you cannot skip months when reconciling. This is because each reconciliation begins with the reconciled balance from the previous month. If it has been several months since your last reconciliation, you should go back and fill in the missing information.
C= Beginning Balance: When reconciling your credit card statement in QuickBooks, the ending balance from the previous statement should be entered as the beginning balance of the current statement. If this is your credit card’s first reconciliation, the amount should be set to zero.
To ensure successful reconciliation, the beginning balance calculated by QuickBooks should match the balance from the last reconciliation. If they differ, QuickBooks provides a link to help you identify the transactions that have caused the change.
D= Ending Balance: Input your balance statement, from your credit card statement.
E= Finance Charge: If you haven’t yet, enter the finance charge from your credit card statement into QuickBooks. Be sure to include the date of the charge, the category, and the expense amount to track the expense accurately. QuickBooks will automatically record this expense when the reconciliation process is complete. Once all the statement information has been entered, click the green “Start Reconciling” button to proceed.
3. Match Credit Card Transactions: Once you complete the second step, QuickBooks displays a reconciliation summary on the top half of the screen. The bottom half shows detailed transaction information.
A=Statement Ending Balance: The ending balance on your credit card statement should align with the statement balance derived from the information you provided in the previous screen.
B=Cleared Balance: QuickBooks is responsible for cleared balance, charges and minus payments.
C=Difference:To finalize a reconciliation, this number should be zero. That indicates that the cleared balance and the statement ending balance are identical, signifying no difference.
D=Cleared Transaction: To align transactions between QuickBooks and your credit card statement, you must trace transactions from QuickBooks to your statement and review any unmarked ones.
For each transaction listed on your credit card statement, you must click the radial button in the right column, which will include the transaction in the B section (Cleared balance).
4.Trace Transactions From QuickBooks to Your Statement: To identify discrepancies between QuickBooks and your credit card statement, you need to review every transaction listed in both accounts.
Pay particular attention to any transaction in QuickBooks that is not reflected in your bank statement. While it’s possible that this is an error in your QuickBooks accounting, it’s important to investigate further before deleting the transaction, as it may have an impact on other accounts or periods.
Some common errors that can lead to errant QuickBooks credit card transactions include:
Duplicate Transactions: If you accidentally create a duplicate transaction and the original transaction is shown on the statement, but the duplicate is not, you will need to delete the duplicate transaction. This may happen if you manually add a credit card transaction that the bank has already imported.
Wrongly Account: In cases where a suspicious transaction arises, it might be due to a charge being mistakenly recorded on this account when it was made using a different credit card. To resolve this issue, you can rectify the error by modifying the transaction and ensuring it is assigned to the correct payment account.
Wrong Date: If the date of a transaction is entered incorrectly in QuickBooks, the transaction might not appear on the statement if the corrected date falls after the statement’s end date. If the transaction occurred close to the end of the period, it might be accurate. However, if the date is incorrect, you can edit the transaction to fix the error.
Investigate Unmarked Transactions on your statement: After marking transactions in QuickBooks, review your statement for any unmarked transactions. If these transactions are valid, add them to QuickBooks. Once added, indicate that the transaction has been cleared by selecting the radial button in the right-hand column.
For convenience, open a second QuickBooks tab by right-clicking on the current tab and choosing “Duplicate.” Navigate the second tab to make necessary changes as usual. After saving the changes, refresh the original tab to view the updates.
Confirm the difference is zero
To reconcile your accounts, ensure the ending balance and the cleared balance match, resulting in a zero difference. Finding errors can be frustrating, but sometimes simple math can help confirm the accuracy of your work. This can be achieved when the beginning balances, transactions, and ending balances all align.
Here’s an example of a reconciliation where all transactions match the statement:
To conclude the reconciliation process, locate the green “Finish” button in the screen’s upper right corner and click it to finalize the process.
5. Make a Payment on the Credit Card Balance (Optional): Although not mandatory, creating a bill or making a payment towards the credit card balance can be performed after QuickBooks notifies you that the reconciliation process is complete.
A. Pay all or a portion of the bill now: Here, you can create a check that is intended for payment.
B. Enter a bill to pay later: When entering a bill, choose a due date that alligns with the due date on your credit card statement. This ensures that the bill is paid in full by the due date, avoiding any late payment fees or interest charges.
Conclusion!!
The fundamental method for reconciling your credit card in QuickBooks is to input the statement ending balance and match your transactions with those listed on the statement in your account. We trust that this step-by-step guide on reconciling credit cards in QuickBooks has been helpful. We’re eager to hear your success stories about using QuickBooks effectively.
