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Module 2 – Bank, Credit Card, PayPal and Undeposited Funds Reconciliation

MODULE 2
Bank, Credit Card, PayPal and Undeposited Funds Reconciliation

bank and credit card reconciliation

When can you say Bank and Credit Card accounts are properly reconciled

  • All banking and credit card transactions are entered in QBO
  • All banking and credit card accounts are reconciled
  • No reconciliation discrepancies
  • No old uncleared banking transactions
  • No changes to previously reconciled transactions

All banking and credit card transactions are entered in QBO

  • All banking and credit card transactions are entered in QBO
  • No old transactions in bank feeds (Remove old transactions if necessary)
  • If not sure how to categorize a transaction, use Cleanup Clearing Account:Needs More Verification

Cleanup Clearing Account: Prior Year balance sheet adjustments

  • Cleanup Clearing Account:Prior Year balance sheet adjustments is closed to Retained Earnings
  • Period to adjust is Last tax return year-end date**
  • **Consider how this will affect the reconciliation with Schedule L

Cleaning up Errors in beginning balances of bank or credit card reconciliation

  • When transaction amount was changed
  • When transaction was deleted or voided
  • When transactions was manually marked as “R” reconciled in the bank register

Cleaning up the old Uncleared banking transactions

  • The old uncleared transactions  are usually duplicates or invalid
  • Check the reconciliation window or reconciliation reports and look for old uncleared transactions
  • Check the transactions and verify and do cleanup
  • Remember: Bank or Credit Card is not rightfully reconciled until old uncleared transactions are cleaned up
  • Review the old uncleared transactions in bank reconciliation.
  • Clear out the Prior Year old uncleared bank or credit card transactions
  • Clear out Reconciliation discrepancies to Cleanup Clearing Account:Prior Year balance sheet adjustments
  • For Current Year of Cleanup especially if the client has reconciled the accounts but still have old uncleared transactions
  • Need to verify these transactions and identify whether duplicates or invalid
  • Options:
    • Delete transactions manually that are invalid or duplicate. You can do this one by one or use transaction deleter

Errors in beginning balances of reconciliation

Cleaning up old uncleared bank transactions 1

Cleaning up old uncleared bank transactions 2

Re-concilling

Re-reconcile Bank and Credit Card after making changes to reconciled transactions

  • If possible, do not manually mark “R” in the bank register when doing bank reconciliation
  • Do re-reconciliation

Undoing bank reconciliation

  • If bank reconciliation are all in mess
  • You can undo or batch undo bank reconciliations (available in QBOA)


Reconciliation Discrepancies

There is Reconciliation Discrepancies

  • When bank/credit card reconciliation was forced to reconcile
  • There is “Auto Adjustment” in the history of bank reconciliation
  • “Reconciliation Discrepancies” account is seen in the Profit and Loss Report
  • You can Undo the reconciliation and reconcile again

What can you do with Reconciliation Discrepancies

  • You need to evaluate why is there that account and make action
  • You can make adjustment to which account to use for or Undo and reconcile again
  • If there are lots of reconciliation discrepancies it means that there is wrong with client’s workflow

Undeposited funds reconciliation

Undeposited funds Workflow

Undeposited Funds

  • A type of clearing account that holds transactions that have not been entered as deposits
  • Be familiar with the Undeposited funds workflow so that you will not be confused

Workflow


Cleaning up current year undeposited funds

  • Cleanup ways
    • Manual cleanup like finding customer invoices, applying payments and then do deposits for every transaction
    • Creating Dummy bank account 
  • Before cleaning up Undeposited funds, the bank accounts have been reconciled

Undeposited Funds - Manual Cleanup

  • You ask for copies of checks deposited, merchant payments
  • You record invoices, sales receipts and apply payments and create deposits
  • You still need cooperation from your client to get these documents and this may be time consuming
  • Review also if there are deposits inside the Sales transactions (Profit and Loss Report)
  • Edit the Deposit where transaction has undeposited funds balance and apply it

Undeposited Funds - Dummy Bank account

  • This is used when source transactions do not exist but less accurate
  • Quick way to clean up and watch for adjustments from Prior Year

  • Create “Dummy Bank” account
  • Select customer payments you want to cleanup then Save and Close.
  • Create “Expense” transaction, apply the “Dummy Bank” account and use “Income” account to clear out the balance of Dummy bank account.

After recording the deposit and expense, check that the ending balance of Dummy Bank Account is zero. You can look this at the account register

The Income account transactions inside the Profit and Loss Report must have Invoice and Sales Receipt transactions and no Deposit. If there are Deposits, there is something wrong with the workflow.

Undeposited Funds - Clear out the CY balance

  • Especially if there are old uncleared CY Undeposited funds
  • Select customer payments you want to cleanup and use End of the Current year date, then Save and Close.
  • Create “Expense” transaction, apply the “Dummy Bank” account and use “Income” account to clear out the balance of Dummy bank account.


Cleaning up of old undeposited funds

Cleaning up Old Uncleared Prior Year Undeposited Funds

  • Last tax return year-end date before starting cleanup example 2019
  • Period to adjust 12/31/2019
  • Account to use for adjustment: Cleanup Clearing Account: Prior Year balance sheet adjustments**
  • **Close to Retained Earnings Account

paypal bank accounts reconciliation

paypal workflow

Paypal and How It Works

  • This is a type of bank account and also a payment processor
  • It has a balance and transactions flow back and forth between Paypal and the bank and the credit card accounts.
  • It processes payments or income from various sales channels like Shopify and  Amazon
  • The Payments (income) processed by Paypal is deposited in the bank account that is net of Paypal fees
  • If you make payments to vendors using Paypal balance, set up a separate PP account to pay vendors or change the PP account settings to pay vendors and use bank or credit card account
  • If you use Paypal to collect or receive customer payments still set up a separate PP account for each ecommerce sales channel.
  • If connecting to QBO, use Connect to Paypal App.

Paypal Workflow - when bank feed is connected


Preferred paypal settings

  • Default Payment is Credit Card or Bank but not Paypal balance
  • Create Auto transfer balance to the bank account
  • Use Connect to Paypal app in connecting PP to QBO
  • Use separate Paypal accounts for paying expenses and for receiving income
  • Have a separate Paypal accounts for each sales channel

Paypal Account settings

 

Common paypal errors

Common Error - Duplicate Income

  • Amounts received in Paypal are recorded as Income and amounts in the bank account are entered as Income
    • Cleanup solution: Delete duplicate income and reclassify income or apply to correct transactions. Record transfers between Paypal and Bank account

Common error - Duplicate Expenses

  • Amounts in the bank/credit card are recorded as expenses and recorded expenses also in Paypal
    • Cleanup solution: Delete duplicate expenses and record transfers between Paypal and Bank/Credit Card account

Common Error - Paypal is not reconciled or no Paypal balance on books

  • Don’t know how Paypal works (it is treated as a bank account)
    • Cleanup solution: Decide whether it makes sense to connect QBO and Paypal

Common Error - Difficult to reconcile Paypal balance

  • Don’t know how Paypal works. Too many transactions flowing through Paypal. QBO connection does not always import all transactions
    • Cleanup solution: Consider disconnecting from the bank feed. Use Journal entry in recording Paypal transactions using monthly Paypal reports.

Paypal Bank account

  • Connect to Paypal bank feed is not recommended for high volume sellers especially of the timing difference and too many transactions or the bank feed does not bring in the transactions
    • The alternative: Record transactions via Journal entry that is summarized in monthly totals
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