Use the Bank Reconciliation window to compare and adjust your bank account balance to reflect transactions that have occurred since the last reporting date.
Tip
Results from the Bank Deposit Activity report can be helpful when reconciling bank accounts.
What you'll find:
I want to read the Initial Bank Reconciliation white paper (includes this overview, additional instructions, and lots of screenshots).
Let’s imagine that in July you create a spreadsheet that tracks all the times you use your bank account (debit card receipts, cheque deposits, internet payments, wages, every transaction that goes through the bank). You start doing that on July 1.
The first line on your spreadsheet is your bank balance as of July 1, and then you record all your spending and receipts and so on as they happen.
In early August, you get a bank statement listing the transactions that went through your account for the month of July. You want to match it up with your spreadsheet and compare it to what you think should have went through your account. This is a bank reconciliation. The first time you do this the initial bank reconciliation.
In a perfect world, your bank statement and your spreadsheet would match exactly, line for line. In the real world, that almost never happens.
If the starting balance on your spreadsheet is different from the starting balance on your bank statement, that's a problem. You'll need to find out why they are different before you can proceed with your reconciliation. Unfortunately there is likely no information in your spreadsheet that will tell you why.
However, there may be information on your bank statements to provide you with some clues. On the bank statements you'll see that the closing balance from June matches your starting balance for July (banks are very strict about this). You read through the June transactions.... and the July ones ... and you figure out that a cheque you wrote in June actually didn't clear until July. That explains why it shows up on your July bank statement, but that was 'bank activity' from back in June so it isn't on your July spreadsheet. Nor should it be; it's not July activity.
That cheque is an outstanding bank transaction: activity from before you started keeping track in your spreadsheet that is showing up on the bank statement. You'll need to setup a list of "transactions that happened before I started keeping track in my spreadsheet that I might still see on a bank statement". So you make an entry up at the top of your spreadsheet for that cheque, and that accounts for the difference in starting balances. In agrē, you would make an Outstanding Bank Transaction for that amount; this is the equivalent of “inserting a line above the starting point in my spreadsheet”.
You do a line by line match up between your spreadsheet and your bank statement and you find that everything on your spreadsheet is also on your bank statement except for one item. On the last day of the month you wrote a cheque that hasn't been cashed yet. No problem. You highlight it in pink on your spreadsheet so you remember that it hasn't cleared yet but it will be coming out later. In agrē, you would leave this transaction as unreconciled (not checked).
You also see one thing on your bank statement that isn't on your spreadsheet. There is a bank service charge that you need to record as an expense so you add that to the bottom of your spreadsheet. In agrē, you'd make a journal entry.
Now the TOTAL of your spreadsheet lines for July (including the service charge entry you just made, but not including the cheque that hasn't cleared yet) PLUS "the things from before I started my spreadsheet" matches your bank statement. You have reconciled!