Balancing the Books: Entering Adjusting Entries for Reconciliation in QuickBooks
Reconciling your bank and credit card accounts in QuickBooks is a crucial step in maintaining accurate financial records. However, even with diligent record-keeping, discrepancies can arise. When these discrepancies are not due to simple errors like missing or duplicate transactions, adjusting entries become necessary to bring your QuickBooks records in line with your bank statements. This guide will walk you through the process of entering adjusting entries for reconciliation in QuickBooks, along with common scenarios and frequently asked questions.
Understanding Adjusting Entries:
Adjusting entries are journal entries made at the end of an accounting period to correct discrepancies between your QuickBooks records and your bank statements. They are typically used to account for:
- Bank Fees or Interest: Charges or earnings not automatically recorded in QuickBooks.
- Timing Differences: Transactions that have been recorded by the bank but not yet in QuickBooks, or vice versa.
- Errors Not Easily Corrected: Discrepancies that cannot be resolved through simple transaction edits.
Steps to Enter an Adjusting Entry for Reconciliation:
- Identify the Discrepancy:
- Complete the reconciliation process in QuickBooks and note the difference.
- Analyze the discrepancy to determine its cause.
- Determine the Accounts Affected:
- Identify the accounts that need to be adjusted.
- Typically, this will involve the bank account you are reconciling and an expense or income account.
- Create the Journal Entry:
- Go to "Company" > "Make General Journal Entries."
- Enter the date of the adjusting entry. It is best practice to use the last day of the reconciliation period.
- Enter a journal entry number or let QuickBooks automatically assign one.
- In the first line, select the bank account you are reconciling.
- If the bank balance is higher than QuickBooks, debit the bank account. If the bank balance is lower, credit the bank account.
- Enter the amount of the discrepancy.
- In the second line, select the corresponding expense or income account.
- Enter the same amount as the first line, but use the opposite debit/credit.
- Enter a description for the adjusting entry, explaining the reason for the adjustment.
- Save the Journal Entry:
- Click "Save & Close."
- Reconcile Again:
- Return to the reconciliation window and complete the reconciliation process.
- The "Difference" should now be $0.00.
Common Scenarios and Examples:
- Bank Service Charges:
- Scenario: Your bank statement shows service charges of $25 that were not recorded in QuickBooks.
- Adjusting Entry:Debit: Bank Service Charges Expense ($25)
- Credit: Checking Account ($25)
- Interest Earned:
- Scenario: Your bank statement shows interest earned of $10 that was not recorded in QuickBooks.
- Adjusting Entry:Debit: Checking Account ($10)
- Credit: Interest Income ($10)
- NSF Checks:
- Scenario: A customer's check for $50 bounced (NSF) and was charged back to your account, but you haven't recorded it yet.
- Adjusting Entry:Debit: Accounts Receivable ($50)
- Credit: Checking Account ($50)
- Timing Differences (Bank Fees):
- Scenario: The bank has recorded a $15 fee, but you have not yet entered it into quickbooks.
- Adjusting Entry:Debit: Bank Service Charges Expense ($15)
- Credit: Checking Account ($15)
Q&A:
Q: When should I use an adjusting entry instead of editing a transaction?
A: Use an adjusting entry when the discrepancy is not due to a simple error in a transaction, such as a missing or duplicate entry. Use an adjusting entry when the bank has recorded something that quickbooks has not, or vice versa.
Q: Can I enter an adjusting entry after I have completed the reconciliation?
A: Yes, you can enter an adjusting entry after completing the reconciliation. However, you will need to re-reconcile the account to ensure the "Difference" is $0.00.
Q: What is the best date to use for an adjusting entry?
A: Use the last day of the reconciliation period.
Q: How do I know which accounts to use in the adjusting entry?
A: Typically, you will use the bank account you are reconciling and an expense or income account that corresponds to the nature of the discrepancy.
Q: What happens if I enter an incorrect adjusting entry?
A: You can edit or delete the incorrect adjusting entry. However, be sure to re-reconcile the account after making any changes.
Q: Can I use adjusting entries for credit card reconciliations?
A: Yes, the process is the same for credit card reconciliations.
Q: What is the difference between debit and credit?
A: In accounting, debits and credits are used to record transactions. Debits increase asset and expense accounts and decrease liability and income accounts. Credits do the opposite.
Q: Should I keep a record of my adjusting entries?
A: Yes, it is important to keep a record of your adjusting entries, including the date, amount, accounts affected, and description.
Q: Can I automate adjusting entries in QuickBooks?
A: No, adjusting entries must be entered manually.
Q: What if I am unsure about how to enter an adjusting entry?
A: Consult with an accountant or QuickBooks ProAdvisor for assistance.
By understanding the purpose and process of entering adjusting entries, you can ensure your QuickBooks records accurately reflect your financial position and maintain accurate reconciliations.
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