Posts Tagged ‘reconciling’

An accountant’s favorite number

Someone recently told me that an accountant’s favorite number is zero.  After spending approximately zero seconds pondering the statement, I asked why.  Her response was that when reconciling an account in QuickBooks, if the difference line is $0.00, it is reconciled correctly and her work is done!  I agree that it is a great feeling.  (Just say “no” to reconciliation discrepancies, which is what happens if the difference line is not zero.) Come to think of it, zero is a solid number of choice for accountants.  I can think of a few of my own reasons:
  1. An accountant’s heaven is zero data entry nirvana (see Doug Sleeter’s comment in my post)
  2. An accountant can add, subtract, and multiply by the number zero without having to punch it into a calculator.
  3. Despite what you may have learned in elementary school, accountants are so good at math that they can divide by zero.  Well, maybe not… but they know what #DIV/0! means.
  4. The easiest numbers to account for have zero decimal places, with the value being exactly as displayed.
  5. Zero is a great price.  After all, an alternative acronym for CPA is “Cheapest Price Available.”
  6. A zero looks like a doughnut.  Accountants love doughnuts.
  7. Bring a box of doughnuts to an accountant’s office and, like magic, there will be zero left by the end of the day.
Finally, sometimes my blog posts serve absolutely zero purpose besides hopefully making you laugh and linking back to older posts where you can find some good information.

Set amount thresholds in Xero bank rules so fixed assets aren’t expensed

One of my favorite things about Xero, an online accounting software, is its ability to automatically categorize transactions based on a customized set of rules.  While other accounting software have some built-in automation features (such as pre-filling information from the last entered transaction for a payee), Xero is unique in that it categorizes transactions when they match certain conditions for payees, amounts, references, etc. While this automation can save a lot of time classifying transactions, it could also result in misclassifications if bank rules are applied carelessly.  For example, if both office supplies and fixed assets are purchased from a payee, additional conditions may be required in the bank rules so that transactions are classified correctly.  In the screenshot below, I created a bank rule so that amounts less than $500 spent at Best Buy are classified as office supplies expense (I’m using this amount as an example – consult your tax advisor to determine if a transaction should be expensed or capitalized). Xero rule with threshold amount On the reconcile screen, Xero prompts me to apply the rule for the amounts less than $500, but not for the $1,053.62 which may need to be categorized as a fixed asset.  That transaction is left open, forcing me to investigate it further and properly classify it. Xero reconcile with bank rules  

Bank rules in Xero for fixed amount checks

One of my favorite things about Xero, an online accounting software, is its ability to automatically categorize transactions based on a customized set of rules.  While other accounting software have some built-in automation features (such as pre-filling information from the last entered transaction for a payee), Xero is unique in that it categorizes transactions when they match certain conditions for payees, amounts, references, etc. For example, I set up an automatic monthly payment on my bank’s online banking site for a recurring expense with a fixed amount.  The bank sends the payment with a paper check.  Xero does not import a payee or description for these particular transactions.  Xero imports the amount of the check and “CHECK #XXXX” for the reference.  Even with this limited criteria, these transactions can be automatically categorized with the rule shown in the screenshot below. Xero bank rule for check Creating the automatically categorized transaction in Xero and reconciling it then becomes as easy as clicking on the “OK” button.  Though setting up the bank rules takes some time on the front end, it saves a ton of time in the long run.

Why I Cringe When I See “Reconciliation Discrepancies” in QuickBooks

You’re near the end of a long and busy day, reconciling your bank account in QuickBooks.  You’ve checked off every deposit and check from the bank statement and thought you were done, but the bottom right corner of the reconciliation screen says “Difference: $20.00.” You need to hurry to make it to a dinner appointment, so you click on the “reconcile now” button anyway, and the following box appears:
QuickBooks Reconciliation Discrepancy

QuickBooks Reconciliation Discrepancy

You’ve cleared dozens of transactions totaling several thousand dollars, so a discrepancy of $20 is too small to be worth correcting, right?  So you click on the “enter adjustment” button, QuickBooks automatically creates a $20 transaction to Reconciliation Discrepancies expense, and congratulations, you’re done reconciling! Maybe you just missed recording a $20 bank charge in the books.  In this case, the adjustment for the discrepancy is inconsequential.  However, just because a discrepancy is small, it doesn’t mean it is not worth investigating.  Below are a few examples of what could have caused the discrepancy that might make you glad you looked into it further:
  1. You deposited $20 from a customer in your bank account, but forgot to record it in your books and missed it while reconciling.  The customer gets upset when he/she is invoiced again and claims that the bill was paid, but you have no record of receiving the payment.
  2. A bank error takes $80 out of your account, but the original check was for $60.  In your haste of reconciling, you didn’t catch the difference in the amounts.  If you discover the error, you’ll probably get $20 added back to your account (plus, you’ll score some points with the boss).
  3. You missed an unrecorded $1,000 deposit from a customer and an unrecorded $980 fixed asset purchase.  You might think that missing two large transactions that somehow happen to net out to a small amount would be very unlikely, but I have seen it happen many times!
You never know why reconciliation discrepancies exists.  That’s why I cringe when I see them. When you have a reconciliation discrepancy, you can’t blame the bank or QuickBooks.  You can only blame yourself for making a mistake in the reconciliation process.  You can blame your perfectionist accountant for telling you to start over and do it again, but you might thank your accountant for it later.