and now we're going to learn the most important thing you'll ever learn in
bookkeeping and accounting and you will only learn it from this video how to prove that
your entire set of QuickBooks Online records are correct to the last detail
if you have any questions about this topic you can leave them in the comment section below and
I'll do my best to help you and of course if you feel the video helped you I hope you will click
like and don't forget to subscribe to get updates on new videos that come out all the time so how
could we prove that everything in our QuickBooks Online records is correct to the last detail well
we know the bank reconciliation proves most things are correct and you really should reconcile every
company bank account and every company credit card account that you record in QuickBooks
Online anything not proven by reconciliation can be proven correct by other steps shown here
in this course so why does bank rec prove most data is correct in all the rest of the accounts
in QuickBooks Online well we know that every transaction changes cash and another account
for example if cash increases usually there's an income account that's also increasing with
it and if cash decreases then usually there's an expense account that records an increase for
whatever reason decreased the bank account like if we paid for delivery or if we paid for repair
so we know if it's a strictly cash company that every transaction changes cash and some
other account in the chart of accounts and the computer makes sure that everything is the same
in both accounts we only enter the transaction once and the computer will record it in cash and
the other account and the computer makes sure that it's the same in both places therefore if
it's correct in the cash account that it's correct in the other account and if cash is correct then
everything else in the company's chart of accounts must be correct but what about a
non-cash company well no matter what you will always have some transactions that have to go
through the bank account and that's true even if we allow our customers to pay on credit and
even if our vendors allow us to pay on credit ultimately some things will still come through
cash and if we have accounts receivable and we have accounts payable that means that every
transaction changes either accounts receivable accounts payable or cash think about it we're
either paid with cash or paying with credit and that's accounts payable customers either pay
us into our bank account or promise to pay in the future and that's accounts receivable and
since we have a computer and we enter only each transaction once that means it must be the same
in both places therefore if the transaction is correct in either cash accounts receivable or
accounts payable then it's correct in the other account and if these three accounts are correct
then everything else must be correct now if that assertion is true then all we have to do is
reconcile our accounts receivable and our accounts payable along with cash and credit cards and then
we will have proven that our entire set of books and records are correct well guess what we already
learned how to reconcile accounts receivable and accounts payable earlier in this course remember
we learned about customer and vendor statements and fixing miss applied payments and so on so
if you follow those steps properly and reconcile the bank and credit card accounts that's how we
know that everything is correct now you may well ask why is reconciliation the method of proof
that we use to prove these accounts are correct well that's because each transaction recorded in
these accounts are compared to an independent source keeping records of the same events for
example in the case of the cash account the bank is the independent source keeping records of the
very same transactions in the case of accounts receivable the customers are the independent
source keeping records of the same transaction and in the case of accounts payable the vendors
are the independent source and it is in their best interest that they also keep accurate records of
the very same transactions that we are recording therefore if they agree with us then our records
must be correct now there's lots and lots of data in each transaction that we record and in
our quickbooks online records there's many many transactions so what are these reconciliations
checking for anyway well we already remember what the bank reconciliation does and does not
prove if the bank reconciliation works out for credit cards and bank accounts it proves that
all transactions are included and that none or missing it proves there are no false transactions
and no duplicates in other words there's nothing there that should not be there it also proves
that the money amounts of each transaction are correct or at least it's correct enough to rely
upon for your bookkeeping procedures but what does vendor reconciliation prove well it proves
the bill amounts dates and bill numbers are all correct it proves the bill payment amounts and
dates are all correct it proves bill payments have been applied to the correct bills and it
proves the total balance of the vendor is correct at the moment that we are reconciling if you do
not contact the vendor to correct something on the statement it is assumed that it is correct
so then what does customer reconciliation prove well it proves that the invoice dates numbers
and amounts are correct it also proves that the invoice payment amounts dates and transaction
numbers are correct it proves invoice payments have been applied to the correct invoices and it
proves the correct service items or merchandise is correctly listed on each invoice and if the
customer does not object in a timely manner to the statement you sent then it is assumed that all of
your accounts receivable is correct but let's focus on point number four for a moment if we
have the correct service items or merchandise on the invoice that means the customer did not object
to the items that were clearly marked and probably those items are correct and we know that service
items and merchandise are connected to an income type of account we learned that earlier when we
learn how to set up QuickBooks Online therefore all income is recorded the correct accounts if
the correct items are listed on each invoice so that's how we know if we reconcile with customers
that our income accounts are correct so what else remains that we can assume is correct because it's
checked by an independent source well payee and vendor names on check and expense transactions
must be correct or the vendor would not be able to cash the check or get the transfer the dates
on outstanding checks must be correct or the vendor payee would object to the date that you
put on the check for example if you put the date in the future the vendor can't get the money so
if the vendor or the payee agree with the date it is assumed it's correct and items of service and
merchandise listed on sales receipts must also be correct or the customer would object to the price
or the document details these are all independent checks on transaction data and we can assume they
are correct because either the customer or the vendor would object so we're almost there we
have almost covered every possible piece of data in a set of company records there's one piece of
data in transactions that could still be wrong that would not be detected by reconciling these
three accounts in the way that we learned in this course one piece of data in transactions that
would not be checked by an independent source can you guess what it is the answer is choosing the
wrong expense or asset when recording a check or expense transaction that field of data is the only
one that's not checked by an independent source now is that important to get correct well it's
important to the IRS because you have to make sure that you categorize your expenses correctly in
your books in order for your taxes to be correct think about it you must report the total of each
expense category to the IRS when you do your taxes it must be clear which expenses are deductible and
which are not of course the IRS knows that there is no independent check on the expense
category think about it the payee or the vendor for that check or that bill has no interest in
what category this check or bill will be recorded in our own records that won't affect them and they
would not be able to check that anyway so what do we do so stay tuned to the next video to see
the techniques on how to address this particular point and then you will know everything you need
to prove that all your company's financial records and QuickBooks are correct to the last detail
you