102: Cleaning Up Uncleared Transactions Whether You Are Starting A Business, Self-Employed
102: Cleaning Up Uncleared Transactions Whether You Are Starting A Business, Self-Employed, A Solopreneur, Entrepreneur, Mompreneur, Business Owner, Side Hustler, Freelancer, Bookkeeper, Virtual Assistant, Or VA
Reconciling your accounts will make sure you have all your transactions accounted for each month, but when you have transactions that have not cleared the bank, you need to make sure you are taking care of these as well so that you don’t have incorrect data in your financial statements. It’s important to clean these items up in a timely manner so that you are not over or understating your net income for a specific period of time, and taking the time to clean these items up prior to the end of the year will help you prepare for your upcoming tax return. In today’s podcast episode, I cover what an uncleared transaction is as well as how to decide what you need to do to clean it up so that your financials are correct, especially if you find an uncleared transaction from a prior period that has already been closed or your tax return has already been filed. Some of these situations can get tricky, but it doesn’t matter if you are a self-employed individual, a solopreneur, entrepreneur, mompreneur, freelancer, small business owner, a remote, virtual, online, or in-house bookkeeper, or a virtual assistant or VA, it is important to make sure you are following these processes to ensure your financial statements correctly reflect your income. These tips are essential whether you are using a computerized software system like QuickBooks, Xero, Wave, or FreshBooks for your business finances; or doing your bookkeeping manually with an Excel spreadsheet or even a Google Document…
Schedule a free consultation, and we’ll work together to dive into where you’d like to see yourself and your business in the future. We’ll create a laser-focused plan including which action steps you need to take to get you started on the path to success:
https://www.financialadventure.com/work-with-me
Sign up for the Bookkeeping Bootcamp Workshop Today:
https://www.financialadventure.com/workshop
The Strategic Bookkeeping Academy, including Bookkeeping Basics, is open for registration! You can learn more and sign up here:
https://www.financialadventure.com/sba
Grab Your FREE guide: 5 Essential Strategies For Stress-Free Bookkeeping:
https://www.financialadventure.com/5essentials
Your FREE Online Virtual Bookkeeping Business Starter Guide & Success Path is waiting for you:
https://www.financialadventure.com/starterguide
Apply to join the Mastering Your Small Business Finances CEO Mastermind or the Elevate Your Bookkeeping Business GROW Mastermind group:
https://www.financialadventure.com/mastermind
Looking for a payroll solution for your business? You can get an exclusive 15% discount on your payroll services when you sign up here:
https://www.financialadventure.com/adp
Looking for an extremely beneficial online bookkeeping resource? Join us in our Mastering Your Small Business Finances Membership, where you can ask questions and get answers regarding your specific business. We dive deeper into the topics on this podcast and provide additional resources and accountability:
https://www.financialadventure.com/mysbf
Sign up for a virtual coffee chat to see if starting a Bookkeeping Business is right for you:
https://www.financialadventure.com/discovery
Join Our Facebook Community: https://www.facebook.com/groups/womenbusinessownersultimatediybookkeepingboutique
Are you a bookkeeper looking to start, grow or scale your bookkeeping business? Join our FREE bookkeeper community here:
https://www.financialadventure.com/bookkeepercommunity
QuickBooks Online - Save 30% Your First 6 Months:
https://www.financialadventure.com/quickbooks
Show Notes:
Reconciling your accounts will make sure you have all your transactions accounted for each month, but when you have transactions that have not cleared the bank, you need to make sure you are taking care of these as well so that you don’t have incorrect data in your financial statements. It’s important to clean these items up in a timely manner so that you are not over or understating your net income for a specific period of time, and taking the time to clean these items up prior to the end of the year will help you prepare for your upcoming tax return. In today’s podcast episode, I cover what an uncleared transaction is as well as how to decide what you need to do to clean it up so that your financials are correct, especially if you find an uncleared transaction from a prior period that has already been closed or your tax return has already been filed. Some of these situations can get tricky, but it doesn’t matter if you are a self-employed individual, a solopreneur, entrepreneur, mompreneur, freelancer, small business owner, a remote, virtual, online, or in-house bookkeeper, or a virtual assistant or VA, it is important to make sure you are following these processes to ensure your financial statements correctly reflect your income. These tips are essential whether you are using a computerized software system like QuickBooks, Xero, Wave, or FreshBooks for your business finances; or doing your bookkeeping manually with an Excel spreadsheet or even a Google Document…
Welcome Back…Whenever you find an uncleared transaction in your books, you need to follow through with it to see how you should handle it properly so that your income is reflected correctly. You may find uncleared transactions if you are doing your bookkeeping manually or when utilizing a computerized software system such as QuickBooks Desktop or QuickBooks Online. In this episode, I’ll be referring to cleaning up your uncleared transactions when using QuickBooks Desktop or QuickBooks Online since they are such widely used programs, but regardless of which system you are using for your bookkeeping, you can follow these same processes, and if you are interested in purchasing QuickBooks Online, you can go to www.FinancialAdventure.com/QuickBooks to receive thirty percent off your first six months.
Let’s start with what a cleared transaction is. If you have a cleared transaction, you will have a transaction that is listed in your books, and the bank will show the transaction as clearing as well. An uncleared transaction is when there is a transaction that has been recorded in your bookkeeping system that has never cleared the bank. This means that either the bank never cashed a check, or a deposit may have never been recorded on your bank statement. When this happens, you need to do a little research to find out why the transaction has not cleared the bank, so you know exactly what you need to do with it to clear it up on your books. Any uncleared transactions are also recorded in your book balance, but your bank will not show this amount. For example, if you wrote a check for $1000 to a vendor, but the check still shows that it is uncleared, it would mean that the vendor probably never cashed the check, and the bank never deducted the money from your bank account. This will cause you to have a different balance in your book balance than the bank shows for your bank balance. These uncleared transactions can show up in your bank checking and savings accounts, your credit card accounts, loans, or other accounts you might have for your business. Not only is it important to reconcile your balances each month to ensure that you have all of your transactions accounted for, but you also want to make sure that you are looking into any uncleared transactions as soon as possible so that your financial statements are accurate. Uncleared checks could be overstating your expenses, and any uncleared deposits may be overstating your revenues or sales.
So how do you know if you have any uncleared transactions that you need to clean up? One of the best ways is to take a look at what has not cleared when you are doing your bank reconciliation. If you are utilizing QuickBooks Desktop or QuickBooks Online, you are probably familiar with their bank reconciliation feature. When you go to reconcile your account, you simply check off each item that has cleared your bank statement, whether it was a check or withdrawal, or a deposit to your account. When you have successfully checked off each item that has cleared the bank, your difference will be zero, which means that you have successfully reconciled your account. Before you click on the reconcile now button, take a few minutes to review the unchecked transactions. These are all the transactions that have not cleared yet and the items that could be causing you to have an incorrect balance or impact your balance sheet or income statement reports. If you are seeing transactions that are listed with dates that are after the statement cut-off date, that only makes sense that they would not have cleared yet since they would clear after this statement date, but you do want to dig deeper into any uncleared transaction that has a date prior to the statement cut-off date. You may want to create a process that requires you to look into any transaction that is at least 30 days older than the statement date to give your transactions time to clear. When you do this, it is easy to look over all of the items that have not cleared.
The next step is to find out why your uncleared transactions haven’t cleared yet. Here you will need to do a little investigating. Let’s take, for example, that $1000 check we talked about earlier that you wrote out to one of your vendors. You may want to double-check that you didn’t duplicate the check first. If you don’t believe the check has been duplicated or entered twice, you could contact the vendor to see if they still show that the amount is owed by you. Maybe the check got lost in the mail, and you need to reissue it to the vendor. If it was indeed a duplicate entry, you would need to void the transaction. You would do this same investigation with any deposits that you might show as uncleared as well.
Once you know what is happening with your uncleared transactions, it is time to clean them up. One important thing to consider when you are cleaning up transactions is to pay attention to the date the original transaction was recorded. If you are preparing financial statements and closing the date on them each year so that you can prepare your tax return or if you set a closing date each month, you want to make sure you don’t change any of your information for those prior periods unless you check with your tax preparer or accountant to see if you need to amend your tax return with these changes. If you are cleaning up a transaction from a prior period or a closed period, and your tax preparer or accountant advises you to make the changes in the current year, you would more than likely need to create a journal entry to reflect these changes in the current period or month. To create a journal entry, you will need to go to the company tab and select create a journal entry. From here, you will be able to create the journal entry to clear your uncleared transaction. You will enter the account you are clearing the transaction for as either a debit or credit, depending on your situation, and you will offset this amount by the original expense or account that was used in the original transaction. If you are making changes to a current period, you could easily either void or delete the transaction if it was a duplicate or error. If you need to reissue a check, you could go back to the original check and simply check the to be printed box and print a new check. Make sure that when you are making any adjustments like this that you make a note of the old check or transaction for your records.
Once you have taken care of the uncleared transactions, you should be able to check them off on your bank reconciliation. If you created a journal entry to clean up the uncleared transaction, you will see the original transaction in the bank reconciliation screen, as well as the journal entry you created on the opposite side. You will be able to check off each item, and you will again be in balance and can then reconcile your account.
You know that I highly recommend that you reconcile your accounts on at least a monthly basis. When you do this, you can easily keep an eye on items that are not clearing your bank statement. By monitoring these transactions each month, you will ensure that your financial statements are not only timely but they will be accurate as well. I find uncleared transactions to be one of the major issues I help my clients with. There are times when we are cleaning up multiple transactions that are uncleared from not only the last year, but sometimes these transactions go back five to ten years. If you can stay on top of your uncleared transactions and don’t let them get out of control, you will be able to catch these items sooner, you’ll have a better recollection of what happened with the transaction, and you’ll have more confidence in your book balances. When you are current with your bookkeeping, it makes everything easier. Schedule time every day, week, or month to do your bookkeeping, and you’ll start seeing positive results by not only knowing how your business is doing, but you will start to feel you are able to accomplish your bookkeeping tasks confidently as well. If you feel like you are struggling in this area, join us for my upcoming Bookkeeping Bootcamp, where you can get your bookkeeping started or catch up on your bookkeeping for the year so that you are ready for the upcoming tax season. When your bookkeeping is up to date, think about how much more satisfying your business will be, as well as the peace of mind you’ll have knowing everything is accurate and you can make sound business decisions from this data. Having your bookkeeping up to date in this last part of the year will also help you make good tax decisions and have strategies in place so that you can save money on your taxes. You’ll know exactly how you are sitting for taxable income this year compared to last year at this time and if it would be beneficial for you to include additional expenses you’ve been thinking about making this year. Being strategic about your expenses could save you from paying additional taxes. If your bookkeeping isn’t up to date, you won’t have this availability to strategize and make good decisions before the end of the year. To help ensure your bookkeeping is up to date and accurate before the end of this year, I am holding a Bookkeeping Bootcamp Workshop for you to attend. I know it can be easy to put your bookkeeping off, and I hope the solutions I mentioned in this podcast help you develop an easy bookkeeping system you can maintain, but if you feel you need additional help, I am here for you. As a CPA, Business Strategist, and Coach, I help business owners just like you to ensure you have up-to-date and accurate financial statements. I take the uncertainty and stress out of doing your own bookkeeping. In this workshop, you’ll have a chance to either get started with your bookkeeping, catch up on your bookkeeping or make sure you have your bookkeeping system set up properly so that you can make smart business decisions during these last few months of the year. You’ll also have a better understanding of which reports you should be reviewing and what each report means for your business. This workshop is excellent for business owners and solopreneurs who are doing their own bookkeeping, as well as bookkeepers who want to understand financial statements better and streamline their procedures in their bookkeeping business. I offer workshops like this throughout the year, and you can go to www.FinancialAdventure.com/workshop to sign up for this current Bookkeeping Bootcamp Workshop today, and don’t worry, if you are unable to attend the upcoming live Bookkeeping Bootcamp in October, once you are registered for the event, I’ll be sending out a link for the replay so you can watch it at your convenience. I’ll post links to this and other valuable resources for business owners and bookkeepers where you are listening to this podcast and in the show notes.
And, you know I’m going to ask…what’s at least one thing you will take away from this episode that will help your business succeed and grow your bottom line? If you need some accountability, join our PRIVATE Facebook community and post your action item, we’d love to support you.
