The month-end closing process can seem tedious and daunting to many small business owners. Thankfully, learning how to reconcile in QuickBooks Online to close your books can help ease that burden.

A recent survey suggests that 72% of self-employed contractors do their own accounting. If you're among them, it's crucial to understand what reconciliation is and how to do it right.

In this step-by-step guide, we'll show you how to reconcile your accounts in QuickBooks Online so that you can confidently close your books each month.

Step-by-step guide: How to reconcile a bank statement in QuickBooks Online

Follow these steps to reconcile your accounts using QuickBooks Online.

Step 1: Sign in to QuickBooks Online

Step 2: Go to the Reconciliation page

Select Settings, then Reconcile. You can select Get Started if this is your first time reconciling.

Step 3: Select the account you want to reconcile

From the drop-down menu, select the account that you want to reconcile. This could be your bank account, credit card account, savings account, etc.

Step 4: Enter statement details

Enter the ending balance and statement ending date from your bank or credit card statement.

Step 5: Review the beginning balance

Ensure this matches the beginning balance on your bank statement for the month you're reconciling.

Step 6: Match transactions

Select Start Reconciling and carefully match each transaction in QuickBooks to your bank or credit card statement. Check off each transaction in QuickBooks that matches your statement.

Step 7: Resolve discrepancies

If there are any discrepancies between your bank statement and QuickBooks, resolve them by either adding missing transactions or correcting erroneous ones in QuickBooks.

Step 8: Finish bank reconciliation

Once everything matches and the difference is $0, select Finish Now.

Step 9: Review the reconciliation report

After completing the reconciliation, QuickBooks will generate a reconciliation report. This report provides a detailed record of the transactions you reconciled. Review it for accuracy, and save it for your records.

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What is QuickBooks Online?

QuickBooks Online is a cloud-based accounting software designed by Intuit that allows users to manage and track their income and expenses from anywhere with an internet connection. It offers various features like real-time invoicing, payment tracking, payroll, and sales tax management.

QuickBooks Online vs. QuickBooks Desktop allows you to access your financial data from any device. It's best suited for ecommerce and web-based businesses that need seamless accounting integration.

Choosing between the two largely depends on your business's needs and preferences. So whether you're self-employed or a small business owner, QuickBooks Online can be an excellent accounting tool.

What is reconciliation? 

In accounting, reconciliation refers to the process of verifying the accuracy of financial records. This practice involves comparing two sets of records to ensure the figures match.

In QuickBooks Online, reconciliation typically involves matching transactions listed in your company's accounting software with your corresponding bank statements. At its core, reconciliation is about accuracy and consistency.

Business owners use reconciliation to uncover errors or discrepancies that might have occurred during data entry or transaction recording. These discrepancies might be due to double entries, fraud, human error, or other factors.

Businesses can keep their accounts in order, spot unusual or fraudulent transactions, and avoid issues during audits by reconciling regularly.

Why you should reconcile in QuickBooks

Regularly reconciling your books is a crucial practice for ecommerce sellers. First, it ensures the accuracy of your financial data, helping you avoid errors that can lead to misinformed business decisions. Regular reconciliation allows you to catch discrepancies early, preventing a small mistake from becoming a major issue.

Second, it provides a clear picture of your financial health, giving you updated insights into your income, expenses, and overall profitability. This information is vital for evaluating your business performance and planning for growth.

Lastly, monthly reconciliation prepares you for tax season. Maintaining accurate and up-to-date records mitigates the risk of tax errors and potential penalties. Regular reconciliation can also make it easier to spot possible tax deductions that can save you money.

Benefits of reconciling in QuickBooks Online

There are several benefits to learning how to reconcile in QuickBooks Online.

  1. Accuracy and consistency: QuickBooks Online automatically matches your bank transactions with your accounting records, ensuring accurate and consistent data. Manual reconciliation is prone to errors, but QuickBooks Online reduces the chance of discrepancies.
  2. Time efficiency: QuickBooks Online makes the reconciliation process quicker and more efficient. It categorizes transactions and highlights unmatchable transactions, enabling you to rectify issues quickly.
  3. Financial oversight: QuickBooks Online lets you track your income and expenses in real time. By reconciling, you can stay updated on your business's financial health, which aids decision-making and forecasting.
  4. Audit readiness: Regular reconciliation can make your business audit-ready. By keeping your business records current and organized, you're better prepared in case of an audit.
  5. Tax preparedness: QuickBooks Online reconciliation helps to ensure your records are accurate for tax purposes. It can help you spot tax deductions and avoid penalties for incorrect tax filings.
  6. Cash flow management: Regular account reconciliation can help you manage your business's cash flow effectively. By reconciling, you can ensure that your cash in and out match your records, helping you avoid cash flow issues and maintain financial stability.

Remember, reconciliation is not a one-time process but an ongoing practice that you should do at least once a month.

Risks of not reconciling in QuickBooks Online

Neglecting the practice of regular reconciliation can expose your business to several risks.

  1. Inaccurate financial data: Without reconciliation, you may not detect discrepancies between your bank statements and your QuickBooks. These inaccuracies can result in misguided financial decisions, impacting your business's performance and growth.
  2. Delayed error detection: QuickBooks Online reconciliation aids in identifying errors or fraudulent activities early. If you're not reconciling regularly, you might overlook such issues until they escalate to more serious problems
  3. Tax complications: Inaccurate financial records can lead to incorrect tax filings, possibly resulting in fines, penalties, or audits by the tax authorities.
  4. Inability to monitor cash flow: Reconciliation helps you to manage cash flow effectively by ensuring your records align with actual cash in and out. Without it, you might face unexpected cash shortages or surpluses.
  5. Difficulty in financial analysis: Reconciliation gives you a clear picture of your financial health. Without it, assessing the financial status of your business becomes challenging, which may impede strategic planning and forecasting.
  6. Audit preparedness: In case of an audit, businesses that don't regularly reconcile may find it harder to provide the necessary financial documentation promptly. This delay could lead to a more strenuous auditing process.

Ignoring reconciliation may lead to serious financial pitfalls that can negatively impact your business's success and sustainability.

How do I know a transaction is reconciled in QuickBooks Online?

As you review your bank statements and QuickBooks, select each transaction that matches. Transactions with checkmarks are reconciled. You can also confirm you reconciled a transaction by running a reconciliation report and finding the transaction in question.

How to unreconcile an account in QuickBooks Online

Sometimes, you may need to undo a reconciliation in QuickBooks Online due to an error in the reconciliation process or transaction adjustments. Here are the step-by-step instructions:

  1. Sign in to QuickBooks Online.
  2. From the left navigation panel, select Accounting and then Chart of Accounts. Locate the account you need to unreconcile and select View Register.
  3. In the Register, reconciled transactions are marked with an "R" in the check column. These transactions were included in the previous reconciliation.
  4. Select the transaction you need to unreconcile, and the transaction's details will appear. In the reconcile status box (marked as a check), continually click until the status is blank and the transaction's status changes from "reconciled" to "unreconciled." Repeat this process for each transaction that you need to unreconcile.
  5. After you have unreconciled the necessary transactions, save your changes and review your register to ensure that you successfully unreconciled all necessary transactions.

Remember, after undoing a previously reconciled transaction, you may need to re-reconcile to keep your books accurate. Also, it's always a good idea to consult your accountant or financial advisor before making these changes.

4 ways you can make reconciling less stressful

Reconciling in QuickBooks Online can be daunting, especially if you're new to the software or your records need to be organized.Follow these tips to make the process less stressful.

  1. Stay consistent: Consistency is key in making reconciliation less stressful. Ideally, reconcile your accounts every month. This habit will prevent discrepancies from piling up and becoming overwhelming.
  2. Keep your transactions organized: Record all your transactions accurately and promptly. As you conduct business throughout the month, immediately enter any new transactions into QuickBooks. This prompt action will prevent a backlog of entries at reconciliation time. A QuickBooks sync tool for ecommerce can take care of this for you.
  3. Conduct a mid-month review: Consider conducting a quick review of your accounts midway through the month. This review allows you to correct errors or discrepancies and make end-of-month reconciliation smoother.
  4. Access training and support: Investing in QuickBooks training can also be beneficial. Numerous online courses and support forums can help you better understand the software and its features, including the reconciliation process.

Remember, the goal of reconciliation is to ensure your financial records are accurate and up to date, and with these strategies, you can make the process more manageable overall.

Reconcile faster with real-time accounting automation

All business owners, bookkeepers, or commerce managers must know how to reconcile within QuickBooks. However, the right technology can simplify the process while organizing orders and transactions.

Accounting automation software enables you to sync order details, refunds, taxes, fees, and more from your online stores to QuickBooks, plus capture and sort marketplace fees, seller expenses, Amazon settlements, and Shopify payouts.

Rest assured that your QuickBooks and bank statements align perfectly, giving you peace of mind when closing your books.