Bank Reconciliation - Foundation Soft

Bank ReconciliationMelissa WoodConsultantWhat We’ll Cover1. What is the definition of a bank reconciliation?2. What is the importance of a bank reconciliation in running a business?3. Setting up a G/L Cash Account (Main Menu General Ledger Maintenance Accounts)4. Setting Control Files (Main Menu Tools System Controls)5. Reconciling Cash Accounts6. Creating Journal Entries7. Saving vs. Reconciling8. Running a Bank Reconciliation Report9. Not Balancing? Here are some things to check.10. Refrain from doing these things11. Reconciling Credit Cards

Bank ReconciliationWhat is the definition of a bank reconciliation?A process that explains the difference between the bank balance shown on a bank statement and the amount ineach company’s cash account at a particular point in time, typically at month end.What is the importance of a bank reconciliation in running a business?A bank reconciliation helps you to know your true cash balance at any time, by uncovering discrepancies such as: Checks cashed by the bank for a different amount than was issued (bank mistake) Deposits made but not recorded (software user mistake) Automatic withdrawals not recorded (software user mistake) Payments taken without company’s knowledge (fraud/theft) Un-cleared checks and deposits (aka float)The bank reconciliation feature in FOUNDATION is called “Reconcile Cash Accounts.” To access it from the MainMenu, go to General Ledger Daily Reconcile Cash Accounts.1

Setting up a G/L Cash Account (Main Menu General Ledger Maintenance Accounts)The very first thing you need to do when you have new bank account or when you set up your G/L accounts inFOUNDATION is to make sure that your Account Type setting is defined. Your options are “Checking,” “Savings,” or“Credit Card”. This setting is how FOUNDATION knows if an account needs to be reconciled. If you do not definethis field properly in your initial setup, the entries that hit that account will not flow to the Reconcile Cash Accountsfeature. Please note that this is not retroactive.2

Setting Control Files (Main Menu Tools System Controls)1. G/L Controls; G/L 1 Tab - Enable “on the fly” Journal EntryThis feature when enables allows the user to add a journal entry while within the Reconcile CashAccounts feature.3

2. A/R Controls; A/R 3 TabThis feature allows you to condense all cash receipts on a particular day to one amount. This is great forreconciling the cash account but it does create extra setup every time you record a cash receipt, as youalso need to record a bank deposit. This is great for companies that get a large number of checks everyday. It is not ideal for companies that only get one or two checks per day.4

Reconciling Cash AccountsWhen you receive your bank statement at the end of the month, you are ready to reconcile your cash account.Before you start, ask yourself: Have I entered all my electronic withdrawals? Have I entered all my deposits? Have I post all my interest and bank fees? Have I posted all my manual checks? Does my Reconciliation Report match my G/L Balance?oIf the numbers do not match, contact Support at 1-800-246-0800.oIf the number do match, continue with bank reconciliation5

1. From the Main Menu, go to General Ledger Daily Reconcile Cash Accounts.2. In the Cash Account field, select the appropriate cash account.3. In the Begin and End Date fields, enter a date range.4. In the End Balance field, enter the bank ending balance.5. If you do not want to see transaction dated after the statement date, disable the Include TransactionsDated after Statement Date checkbox.6. Click the [Save Criteria] button.7. Click the [OK].8. Check off all checks, deposits, EFTs, and back fees that have cleared the bank. The goal is to get thedifference to be zero.9. Clear ranges of payments and/or checks.6

Creating Journal EntriesIn FOUNDATION, you have the ability to create journal entries “on the fly” from the Reconcile Cash Accountswindow.Please note the following when creating a journal entry from the Reconcile Cash Accounts window: Be aware of the journal type. Only use G/L journal to create entries where both the debit and credit hit the Balance Sheet. Nevercreate journal entries for A/P, A/R, E/Q, or I/N. If you need to make entries to these modules, the entriesneed to be done within the modules to keep them in balance. FOUNDATION will warn you, but it will allow itbecause that is how we enter beginning balances. If you use the G/L Journal, it may not hit your job cost if the offsetting account is going to a job eventhough it lets you enter a job. If you need the offsetting entry to hit a job, use the General with Job Costing(G/J) journal to ensure the G/L and J/C stay in balance.7

Saving vs. ReconcilingIf you have entered all of the information you can but you aren’t done, you can save your changes by clicking the[Save] button. You should only click the [Reconcile] button if your difference shows zero and you want tocomplete your bank reconciliation.Also note that you useto find a transaction amount.8

Running a Bank Reconciliation Report1. From the Main Menu, go to the General Ledger Reports Bank Reconciliation History.2. In the Cash Account field, select the appropriate cash account.3. In the Reconciliation Date Range and To field, enter the appropriate date range.4. In the Bank Statement Balance field, enter the bank ending balance.5. In the Print Detail field, select the level of information you want to include. Your options are: “Summary Only” “All” “Reconciled Only” “Outstanding Only”6. Print/save a copy, attach it to a bank statement, and file it.Not Balancing? Here are some things to check. Can you divide the difference by 9? If so, you may have a number transposed.Double check the Reconciliation Report against your bank statement. Are you missing anything? Did youclear all the transactions?Did you enter the bank ending balance? Sometimes people make a mistake here and enter the wrongamount.Are the reconciliation dates correct?Was there a check voided in a prior month that was already reconciled? Major problem. Never voidreconciled transactions.Is there an item that clears in the current month but is recorded in FOUNDATION in the next month? If so dothe debit/credit cash tricko Create a journal entry for the amount, debit and credit the cash account, but only clear one of thetransactions. Then, the next month it washes out when you clear both the debit and credit.Is it possible that your payroll information is secured for the user and they cannot see P/R-relatedtransactions?Refrain from doing these things Entering cash history – This program is only used for the first bank reconciliation when you go live. It is toenter your opening balances and checks that have not yet been cleared. Never use this program again.It does not hit the G/L and can cause issues if misused. Purging Journal Entries Voiding Checks that were already reconciled Reconciling more than one month at a time Reconciling every single day Using dates other than the beginning of the month to end of the month9

Reconciling Credit CardsA) If you do not pay A/P invoices with a credit card, you need to set up a vendor for each card and enterinvoices for that vendor the regular way. You will charge costs to proper expense accounts, then pay thevendor as you would any other vendor.1. Enter A/P invoices as usual.a. Debit the expense account.b. Credit the A/P account.2. Select invoices for payment, selecting “Check” or “EFT” as the Payment Type.3. Print, list, and post payments, selecting “Check” or “EFT” as the Payment Type.a. Credit the cash account.b. Debit the A/P account.B) If you do pay A/P invoices with a credit card, you may want to reconcile credit cards with the sameprocess. This process is slightly more involved, but it does work if followed impeccably. Make sureyou have a vendor set up for each credit card, you have a G/L account set up for each credit card, andthat the G/L Account Type is “Credit Card.”1. Enter A/P invoices as usual.a. Debit the expense account.b. Credit the A/P account.2. Select invoices for payment, selecting “Credit Card,” as the Payment Type. Select the credit cardaccount you want to use to pay the invoices3. Print, list, and post payments, selecting “Credit Card” as the Payment Type.a. Credit the liability account (in lieu of Cash). This is a payment in bank rec.b. Debit the A/P account.4. At some point in the future, you are going to pay the credit card company for the charges. At thatpoint, you will enter the credit card charges using an A/P invoice, but instead of hitting the expenseaccount, you need to hit the liability account.a. Debit the liability account. This is a deposit in bank rec.b. Credit the A/P account.5. When you are ready to pay the credit card company, you are going to select invoices for paymentusing a Payment Type of “Check” or “EFT.”6. Print, list, and post payments, selecting “Check” or “EFT” as the Payment Type.a. Credit the cash account.b. Debit the accounts payable account.10

You are essentially entering the charges twice; one time to debit the expense account, and another time to go inand out of the credit card liability account. Keep in mind that it may be a combination of both processes for a cardlike an AMEX. Part of the fees may be for meals. You won’t have “invoices” for these fees, but you will need toenter them as costs to the meals and entertainment account. Then when you want to pay the bill, you will go backin and hit the liability account.Part of the other fees will be actual invoices you are paying, for things like materials and supplies, and thoseinvoices are already in you’re A/P Aging. It is a longer, more involved process, but it is necessary to properlyrecord transactions that you pay with a credit card. Often owners of companies will do this to play the “points”game and reap rewards of charging costs to a credit card so they can discounts on travel or purchases.When reconciling the credit card, you will use the exact same process as you would for cash accounts, asdetailed in this document.11

Running a Bank Reconciliation Report 1. From the Main Menu, go to the General Ledger Reports Bank Reconciliation History . 2. In the Cash Account field, select the appropriate cash account. 3. In the Reconciliation Date Rangeand To field, enter the appropriate date range. 4. In the Bank Statement Balancefield, e nter the bank ending balance .