Reconciling with outstanding checks
Deter
Member Posts: 5
I have checks that were entered in one month but didn't clear until the next month so they aren't on the bank statement for the month they were entered. How do I reconcile that month in Wave since I can choose which transactions cleared on the statement?
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@Deter, I have an "Undeposited Funds" bank account set up for that. Just put cheques that haven't cleared in an account specifically created for that instead of your bank account, and transfer the money there to your bank account once the cheque does clear.
So, when you're paid by cheque, you'd accept payment in that account and make a transfer later down the road.
@JenHopf thanks for the suggestion, I can make that work. I am just surprised that Wave wouldn't include functionality for a very basic accounting function necessary to easily reconcile a bank statement.
Hi, @Deter.
@JenHopf suggestion is the correct way to handle this.
In essence, your accounting page for your bank account should look like your bank statement at all time, so if the cheque wasn't deposited into your account yet, that money shouldn't appear as a transaction to your bank account. But you do still have to mark that invoice as paid, so creating a middle-man account for your undeposited funds is the best way to handle this while still keeping track of everything.
Just to clarify, the issue is not with deposits. I completely agree with using an undeposited funds account for checks that have been received but not deposited as that money is not actually in the bank. The issue is with checks that have been cut but not cashed. Once a check is cut it should be represented in the account balance in Wave regardless of whether it has cleared the bank. Anyone that has ever balanced a personal checkbook, knows you have to total up any checks you've written but haven't cleared and deduct that from the bank statement total in order to match the balance that should be in your checkbook. Otherwise, the account balance is overstated so someone could think they have more available cash and end up overdrawing the account.
Hi, @Deter.
I apologize for misunderstanding your question.
The balance for a given bank account in Wave is meant to reflect your bank statement, not necessarily your chequebook. If you wanted it to reflect your chequebook instead, you would have to enter everything manually, based on your chequebook rather than your bank statement.
In short, you're the one who has to decide whether your accounting will match your bank statement or your chequebook.
@Deter
Create a new liability account to track outstanding checks written, similar to an "Accounts Payable" account, or credit card account. In the new version of Wave, I use an account Liabilities -> Credit Card -> Checks Written (Accounts Payable).
When you write a check that doesn't clear in the current month, put it in this account instead of your checking account. Then when the check clears at a later date, create a transfer from your checking account to the "Checks Written" account to balance them.
You could just use the regular Accounts Payable for this, but I like keeping track of it separately, so it doesn't look like I still need to execute a payment. Having the account it in the credit card category makes it easier to create the transfer when the check finally clears. My accountant may have a differing opinion on the arrangement of accounts though. The idea is the same throughout though - you need some kind of liability account to temporarily track the transaction. The methodology is similar to handling reimbursable expenses that need to be paid to employees for expenses paid for with personal funds.
@SPL, thanks for the suggestion. I ended up doing something similar. I created an "Outstanding Checks" account and when I do the rec I do a general entry for the total of anything outstanding on the last day of the month and then reverse the entry on the first of the next month. This way it will reconcile and also keep an accurate balance in the checking account. I also sent an enhancement request to Wave so hopefully they will improve this function.
How do I reconcile sales tax that hasn't cleared the bank using the accrual accounting method? The transaction date is different than the date it cleared the bank.
Since Wave only used the ending account balances as entered, there isn't a way to do a normal reconciliation. The only way I have found to do a proper bank rec in Wave is to create a clearing account that I post a general entry between the clearing account and the bank account for any transaction that hadn't cleared on the last day of the month and then reverse the entry on the 1st day of the month. By doing this you will actually end up with a balance sheet account equal to all outstanding entries as of the last day of the month. This is a little wordy so I hope it make sense.
Thank you Deter, I have the same problem here. It would be great if you could give the steps that you followed to create this clearing account and then how did you reverse the entry. Step by step process would be very helpful especially for non-accountants like myself.
So why does it have to be so complicated to handle uncleared checks? The comments about the account reflecting the statement or the checkbook...i think it can easily handle both.
WAVE already has a flag "matched". If the wave balance reflected the items that are checked matched, then it can easily handle uncleared checks (the uncleared checks would not be marked as matched). Or if needed have a separate matched balance.
Hi @zigi , since this post was created there have been some changes to Wave's bookkeeping system. If you'd like to learn more about bookkeeping for undeposited checks or written/uncleared checks, check out these Help Centre articles here:
If you have further questions, feel free to reach back out!
@KristenV I looked at the second link (Bookkeeping your written checks) but I'm confused as to how to categorize the expense. In this scenario I write a check, record it with an expense category and save it to the In Transit Account. Then when the check clears in the following month the article says to categorize it as a transfer which means I no longer have a way to record what expense category it belongs into. Am I suppose to then create another entry to record it to the proper expense account? How do I handle this in Wave?