Before you generate your financial statements, there is a process you should go through to ensure the accounting reports you give your pastor, treasurer, or governing council is accurate and complete.
Review the steps below before preparing financial statements:
Once all transactions have been recorded you will need to reconcile your bank account. See the steps below for completing this very important step before you begin generating your monthly financial statements.
The bank reconciliation is the process of ensuring that your financial
records and the bank statement are correct and corresponding. It's a
simple process, but can be tedious...at times =)
Review the following bank reconciliation steps:
There may also be deposits recorded in the bank statement but not in your accounting records.
The most common of these is online donations.
With online donations your payment processor may automatically move the money into your checking account. If that was the case, make sure you login to your online donation processing software and record those donation "batches" or "payouts" and restart your bank reconciliation. Note: make sure you open each "batch" and look at the fund assignments and assign accordingly in your accounting software.
I also like to record the "gross" donation in my accounting software and put the "processing fees" in as a negative number (assigned to the proper expense account), so your "net" amount will match your actual bank deposit ... IF your online donation processor...deducts the fees before depositing =)
Compare each of the checks you wrote to the checks that clear the bank. List any checks not on the bank statement as an outstanding check. If there are checks on the bank statement that are not in the accounting records you will need to investigate these. Were they properly approved and signed by an authorized signer? If so, why weren't they recorded?
Once you know the outstanding deposits and checks you are ready to complete the reconciliation and start generating your financial statements.
Most accounting software is set up to make your monthly reconciliations as painless as possible. See your software's instructions or call their support to discover how to reconcile your accounts. (See how to reconcile QBO below.)
If you have to do it by hand...
The net effect should be the balance of the cash account in your accounting records.
If it does not equal the accounting records you will need to go back through everything that was recorded in the general ledger and everything that was recorded in the bank.
A common error is a transposition. For example, a check was written for $78 but recorded in your accounting records as $87. If the amount you are off is divisible by nine, it is likely to be a transposition. You will need to compare each check and deposit in the bank statement to find it.
If outstanding checks from the previous month still have not cleared, your reconciliation will not balance. Look at the previous reconciliation and verify that all checks on the outstanding list have cleared this month. If not, add the uncleared check to the outstanding check list.
Now you have the bank and accounting records reconciled but you are not quite done...
Look at the reconciled items for outdated or unusual items. For example, it is not unusual that checks we wrote toward the last of the month may have not cleared yet, but if you have checks that you know should have been processed by the bank by now, investigate why it hadn’t cleared. Call the person or company. It may have been misplaced or even lost.
Bank reconciliations in accounting software is usually much easier than trying to reconcile with spreadsheets.
In QuickBooks Online and QB desktop, it is a pretty simple process. There are tons of you tube videos and articles on how to reconcile your accounts in both QB products. So I am going to give you a very brief tutorial. on reconciling QBO which is the accounting software I used the most for my clients ...if you need more instructions...do an internet search =)
In QBO, in the left navigation column, go down to "Accounting" and then click "Reconcile" in the little pop out window..
Then put your ending balance and closing date in and most of the time it is simply a process of clicking all the deposits and payments in your software that is in your bank statement; however, QBO now automatically clicks all of the transactions that have cleared your bank in the time frame you input, so you don't have to even go thru and check off each deposit and expense...unless it doesn't zero out. HOWEVER, I recommend making sure each check number matches the bank statement before finishing the bank reconciliation.
I believe it also very important to actually LOOK at each transaction in the bank reconciliation window! Make sure each one looks like an "ordinary and necessary" expense for your organization. If something "sticks out"...investigate it!
Tip: Keep and file a copy of the Reconcile Report with your bank statement.
Last tip, you can view statements with some banks in QBO now =) If you see a the "View Statements" button in the reconciliation tab ... like the one in the image above ... click on it and download your bank statements!
There are several ways to get to the reconcile "window" in QBO now, but I mainly use the left navigation column ...unless I am already in the register I want to reconcile...then it is easier to click on the green "Reconcile" button in the top right corner =)
Church Accounting, The How to Guide for Small & Growing Churches by Lisa London and Vickey Boatright