Let's say that you just received your monthly bank statement in the mail. We are going to use the transactions listed by the bank and the closing balance shown by them to verify that we didn't overlook any transactions while making our entries. In this tutorial, we will reconcile the closing balance shown in the printed bank statement. We will verify whether the checks that appear in the bank statement are indeed in your books and make a note of a check that you wrote towards the end of the month that has not yet cleared.
- Open the account register of the account you want to reconcile, in this case, Assets:Current Assets:Checking Account.
- Click on the toolbar button, Reconcile. You can also select Actions | Reconcile from the menu. The Reconcile Information dialog will open.
- The Interest Payment dialog may pop up automatically. Click on Cancel.
- In the Reconcile Information dialog, change the Statement Date field to the date of the bank statement that you are reconciling with as seen in the following screenshot:
- Make a note of the ending balance shown in the bank statement and type that value over the Ending Balance field and click OK. The Reconcile window opens.
- The two panes called Funds In and Funds Out list all the unreconciled transactions. The R columns show whether the transactions have cleared or not. Those that have cleared will show a green check mark.
- Your bank statement shows the initial deposit of $2000. If that row is already selected, click the space bar to check it. If not, click on that row and it will be checked.
- Your bank statement also shows the cash withdrawal of $350. Check that as well.
- You wrote a check on 05/29 for an amount of $95. However, that has not yet shown up in the month end bank statement. Don't check that.
Note
The Space bar will let you quickly run through a long list
If you have a long list of transactions and want to mark them quickly as reconciled, the space bar is your friend. A single press of the space bar will mark a transaction as cleared and move the focus to the next line. Thus, if you keep the space bar down, you can mark several transactions in quick succession.
- With those items checked, your Reconciled Balance in the bottom-right pane will be equal to the Ending Balance and the Difference will become $0.00. This is when the magic happens and the Finish button gets enabled as you can see in the following screenshot:
- Now that the reconciliation has been successfully completed, go ahead and click Finish to seal the deal.
For bank accounts and credit card accounts you will receive regular monthly account statements from the financial institution that provides that service. It is prudent, of course, to check these statements to ensure that the bank or credit card company has not made any errors recording your transactions. At the same time, you can check that you, yourself, have not made any errors recording these transactions in GnuCash.
Tip
Postpone
You are partly through the reconciliation process and suddenly realize that you have to take care of something else first. Do you have to cancel and redo everything all over again? The Postpone button is there just for that very reason. Clicking the Postpone button will, in effect, pause the reconciliation process. It will not mark the transactions that you checked off so far as y for reconciled. However, it will mark them as c for cleared. You can come back at any time and re-run the reconciliation from where you left off.
Thus, reconciliation is nothing but comparing the closing balance shown on the monthly bank statement with the closing balance reported in the GnuCash Checking Account. At first glance, you might think you could just check that the account balance on the statement matches the account balance in GnuCash. Sometimes that will work, but the balances can often differ for a variety of reasons:
- You may have written checks that have not yet been presented to the bank. Typically, this will happen to checks written by you at the end of the month. You will have recorded these transactions in GnuCash, but they may not yet show up on your bank statement.
- The bank statement may include transactions that you have not yet recorded in GnuCash. Common examples include bank fees and interest.
- The bank may have made an error-recording transactions on their system.
- You may have made an error recording your transactions in GnuCash.
The process of reconciling the difference between the two balances is called account reconciliation. You can perform an account reconciliation using a pencil and paper, but GnuCash includes a handy feature to make reconciling your accounts relatively painless.
Reconciliation is useful not only to double-check your records against those of your bank, but also to get a better idea of outstanding transactions, for example, uncashed checks.
Note
The "starting balance" is what GnuCash remembers as your previous reconciled balance. When you reconcile for the first time, this will be 0.
The R column shows the status of each transaction split as follows:
- n: new
- c: cleared
- y: reconciled
You can change the status of individual transaction splits from n to c or back from c to n simply by clicking on them in the R column in the account register. For example, if you discovered that a particular check cleared the bank, you can mark it c. When you get the next bank statement and start the reconciliation process, this entry will appear with a check mark and save you further work. However, you can't mark transactions y one-by-one to indicate they are reconciled. This can only be done by the reconciliation process and it happens only at the time you click on Finish.
The short answer is NO. Why? This is because, you marked those transactions as cleared only when you saw the entries show up in the bank statement and the amount matched. Based on all those entries that you marked as cleared, the closing balance of the bank matched the closing balance in GnuCash. After doing all that painstaking work, if you go back and make changes to the reconciled transactions, it tends to upset the apple cart.
If you accidentally or otherwise click on the R column in an account register that has it marked as y, meaning reconciled, you will see a warning from GnuCash as shown in the next screenshot:
If you are trying to edit an amount that has been previously reconciled, GnuCash will pop a warning as shown in the following screenshot:
If you are trying to delete a transaction that has been previously reconciled, GnuCash will pop a warning as shown in the following screenshot:
When you see any of the above warnings, as we said earlier, it is better to back off and click Cancel. However, on rare occasions, if you have compelling reasons to do so, make a note of what changes you made and make sure to follow up and complete any related cleanup work that is needed.
If you do make changes to reconciled transactions, be prepared for any unreconciled transaction to show up in the reconciliation window or for deleted transactions to hold up the completion of the reconciliation successfully, and click Finish.
- In the Reconcile Information window, what is the ending balance you will enter?
a. Ending balance from GnuCash
b. Ending balance from my bank statement
c. Ending balance calculated by me
d. Accept the default offered by GnuCash
- In the Reconcile window which transactions will you check?
a. The correct transactions.
b. The transactions that appear in GnuCash.
c. The transactions that appear on the bank statement.
d. The transactions that seem to be missing.