Eight Simple Steps For Balancing Your Checkbook: Fill & Download for Free

Bank reconciliation! Congratulations, you’ve stumbled upon one of the pet peeves of almost all small businesses owners. It’s not particularly fun, but it is vital — nothing is more important than accurate books!Let’s break down the basics of effective bank reconciliation in 8 simple steps.Step One: Document Everything!That mental image of dumping an entire bag of random documents down on an accountant’s desk? It’s happened, and it’s not fun.It’s far better to keep your financial records in a safe, organized place. After all, painless bank reconciliation is largely an exercise in good bookkeeping habits!Here’s what you need in a nutshell (we’ll break them down more below).Business journal or ledgerBusiness checkbook and transaction recordsInvoices and receipts for every financial transactionMost recent bank statement(s)Business LedgerYou’ll want to provide your business ledger or journal — something that records all your business transactions.Business CheckbookYou’ll also need a copy (or original!) of your business’s checkbook. There needs to be a record of every financial transaction that has taken place.Every Invoice, Receipt, and Deposit RecordInvoices and receipts make the financial world go round. Consider these an insurance policy against possible errors in your business ledger. Invoices and receipts allow you to double-check every transaction and verify accuracy. Here’s a tip: Organize them by date.Step Two: Take it Section by SectionApproach bank reconciliation the same way you clean your home — little bits at a time. There’s no wrong way to do it, as long as it’s systematic and organized.Reconcile Checks FirstI recommend beginning with the easy bits. Compare your bank statement to your checkbook and verify that all checks are present. Once that’s finished, do the same with your business ledger. If the checks match, you’re golden.It’s not a bad idea to mark, highlight, or cross out each ‘finished’ check.Outstanding Balances and AccountsYou may have outstanding balances — clients have paid, but the checks haven’t cleared. That’s fine, just make sure to account for all of these outstanding balances.Unrecorded DepositsI like to call them deposits in limbo (technically, they are ‘unrecorded deposits’). These are recent deposits you’ve made that are currently processing. Make sure to check these deposits for accuracy.The Last Bank ReconciliationRemember the last time you did this? It’s a good idea to have your previous bank reconciliation on hand. Check for discrepancies that may arise — sometimes, transactions may slip through. Pay special attention to checks and balances that did not make it on your last reconciliation.Step Three: Discrepancies, Now What?Discrepancies in your statement are an unfortunate reality. Don’t worry, most mistakes are just that — mistakes — and are easy to address.The most common mistakes? Anything involving human input (think typos).Some of the most common errors include:Mixing up purchases and paymentsDouble-entry or duplicate numbersErrors in periods, commas, or number strings ($123.45 instead of $1,234.5)Bear in mind, these mistakes happen. They aren’t the end of the world, and Uncle Sam isn’t coming to bash your door in. It’s absolutely vital to take as much time as you need to make sure your statements match up cleanly.If that means spending an extra hour double-checking periods and commas, go for it.Here’s a tip: fresh eyes help.Take breaks as often as you need — tired reconciliation is risky reconciliation.On Fraud or TheftAnother unfortunate reality is that fraud, theft, and other nefarious activities can happen. Most discrepancies are due to human error, but it’s important to consider criminal activity.Step Four: Cash Business? Don’t Forget the Cash Drawer!If you’re rocking a classic cash register, remember there’s money inside. You might be looking at a fairly significant balance discrepancy if you forget the till.Step Five: Remember Fees and InterestIRS Form 1099-INT exists for a reason. Your bank reconciliation needs to include the interest paid to your accounts. Likewise, don’t forget bank service fees — small numbers lead to discrepancies.Step Six: Voided ChecksVoided transactions can be tricky.Checks do not disappear if voided. Instead, they remain in the ledger for the month they posted. Depending on the accounting software you use, the process may be different. It’s recommended that you maintain a register of voided checks — better safe than sorry.Step Seven: You’re Done, But Do It Again (Soon)Provided your business ledger matches your bank statement, take a breather! You’re done (for now).Remember how reconciliation is like cleaning a house? The same applies here: it’s better to do it frequently, lest the work pile up. Monthly reconciliation keeps everything neat and tidy — that’s invaluable.Step Eight: Do What the Pros DoReconciling books by hand is possible, but alternatives exist. When it comes to financial reporting, we want to reduce the chance for human error.Modern accounting software can automate your bank reconciliation. Many systems offer advanced features like automatic discrepancy reporting — it’s pretty great.Alternatively, you might want to consider outsourcing your bank reconciliation to a professional accounting service. Input from certified pros is invaluable: consider a free consultation with Founder’s CPA today!

Small business owners need a simple way to complete bookkeeping tasks. The more organized the process, the easier it is, and following the accounting cycle is a tried-and-true way to stay on track.What Is the Accounting Cycle?The accounting cycle is the process of recording your business’ financial activities and looking back in time at the end of a designated period. The cycle includes several steps, starting when a transaction occurs and ending with a record of the transaction as a permanent part of a company's financial records. If you use accounting software, you can program dates for your accounting cycle. The software will generate reports based on the dates you select.KEY TAKEAWAYSThe accounting cycle is a step-by-step process designed to make daily accounting activities easier for business owners.There are usually eight steps to follow in an accounting cycle.Accounting worksheets can help make sure all debit and credit balances are accounted for and no errors have been made.Understanding the 8-Step Accounting CycleFull cycle accounting can be broken down into several steps, which you may be able to modify according to your needs. Many steps in the accounting cycle work best with accrual accounting. The double-entry accounting system allows you to cross-reference entries for accuracy.You will begin the accounting period on a certain date, record entries, and close your books at the end of the period. However, it's not necessary to follow the steps that prescribe checking entries for debits and credits.8 Steps of an Accounting CycleThe 8 steps in an accounting cycle, in order, are:Identify transactions: The first step in the accounting cycle is identifying the financial transaction, which includes any transaction involving the use or exchange of a company's assets. You only want to include transactions related to your company in your financial records. Use source documents to identify business transactions, such as receipts and invoices. Save these kinds of financial documents to support your records.Record transactions in a journal: The second step in the cycle is the creation of journal entries, where the financial transactions are listed in the appropriate journal in chronological order. Your journal should be a running list of financial activities, much like a checkbook. Be sure to keep your journal current by tracking transactions as they happen. If you use double-entry bookkeeping, record two entries for each transaction. Enter a debit for one account and a credit for another. The debit and credit should be equal.Posting: The transaction, which was recorded as a journal entry, is now posted to the appropriate account in the general ledger. The general ledger is also known as the book of final entry. General ledger entries track changes made to each account in your books. For example, if a customer paid for a product with cash, enter the transaction under the cash account in your books.Unadjusted trial balance: At the end of the accounting period, a trial balance is calculated as the fourth step in the accounting cycle. A trial balance tells a company if its books are in balance. Use an unadjusted trial balance to test if your debits and credits match. Note each account balance.Worksheet: The fifth step in the cycle is the creation of a worksheet, which a company uses to make any adjusting entries needed to balance the books created during the fourth step. Add all the debit balances and all the credit balances together. If the two totals are not the same, there might be an error in your books or an entry may need adjustment. For example, you may have earned interest on a bank account balance, but not recorded the interest in your books. Use an adjusted entry to recognize the interest in your books.Adjusting journal entries: The sixth step in the cycle is to post the adjusting journal entries. In this step, the adjusting entries tracked in a company's worksheet are posted to the correct accounts. This step acts as a test to ensure debits and credits match.Financial statements: After the company makes all adjusting entries, it then generates its financial statements in the seventh step.Closing the books: Finally, a company ends the accounting cycle in the eighth step by closing its books, effectively starting the accounting cycle over again with a zero balance. When closing the books, decide which processes are moving your business forward. Create a calendar for completing future tasks, file paperwork from the last period, and shred old documents.The Bottom LineThe step-by-step process of the accounting cycle makes accounting easier for busy entrepreneurs, helping to take the guesswork out of how to handle accounting activities. It helps ensure consistency and accuracy, helps manage time and set goals, and generates the overall health of a company's finances.