The goal or reconciling is to match every transaction that is on your bank and credit card statements with an explanation of what the transaction was about. Ideally in the case of expenses one would also attach to it a receipt or invoice that itemizes the expense (i.e. what exactly did you buy for that $328.23 spent at Home Depot). You want this so that you can prove to the tax man that it is a genuine business expense that is truly tax-deductible.
What do we mean by ‘an explanation’? That is simply the expenses and income records that you enter into the system when you buy something or receive rent. The simplest way to do that is to use your phone right at the time the expense occurs (eg when you walk out of the store) or as soon as you receive a rent payment.
By doing it right away you will always be up to date and will never lose, miss or forget the transactions.
So reconciliation is then the process of matching up the transactions on the bank and credit card statements with these income and expense records. Here is how you do it:
- First step is to upload your bank statements. Navigate to Income & Expense ->Reconciliation -> Reconcile Bank Statements
- Now start the reconciliation process by using the ‘AutoMatch‘ Buttons.This will automatically match up the expenses you have already entered with the transactions you just uploaded on the bank statements. This is the easy part of the process.
- Now press the ‘No Auto Match‘ button. This will display the bank transactions for which you have not yet entered any matching income and expense records. It will also display records that have been entered incorrectly, or are duplicates, or have been entered before showing up on an actual bank statement.
The goal now is to enter the right details for all these unmatched transactions so that they can be matched up and reconciled.
- Now automate the form-filling and creation of matching records when you next upload a bank statement. This means you will do less of the NoAutoMatch and more of the AutoMatch reconciling, saving a lot of time.
There is a video on this, but actually it might be easier to read the article instead.