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…

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Show Notes:

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.