Financial Statements Preparation Checklist

Before creating your financial statements, it's important to follow a process that guarantees the accounting reports you provide to your pastor, treasurer, or governing council are both accurate and comprehensive.

Before preparing financial statements, review the following checklist:

1. Start by gathering all relevant financial documentation, such as receipts, invoices, and bank statements, to ensure that every transaction is accounted for. Next, organize these documents chronologically or by category to make the process more efficient.

2. Once your documents are in order, record each transaction in your accounting system, whether it's a manual ledger or accounting software. Be meticulous in capturing details such as dates, amounts, and descriptions to avoid any discrepancies later on.

4. Check unopened mail for any checks or donations.

5. Look for any unpaid bills.

6. Verify that all contributions have been deposited into the bank and recorded in your financial records.

8. Ensure that all paid bills are recorded in the appropriate expense accounts and processed through your checking account.

9. Confirm that your payroll is documented in your financial records.

10. Make sure all payroll liabilities are paid to the correct agencies.

11. Record credit card charges to their respective expense accounts.

12. Review your bank statement and log interest earned, bank charges, and any automatic withdrawals into the appropriate accounts in your financial records.

13. Document any online donation deposits in your accounting records.

14. Once all transactions are recorded, reconcile all Balance Sheet accounts such as bank and credit card accounts. Follow the steps below to complete this crucial task before generating your monthly financial statements.

Bank Reconciliation First then Financial Statements

Reconcile your accounts regularly, comparing your records against bank statements to identify any errors or omissions. This step is crucial for maintaining accuracy and building trust with those reviewing the financial statements.

Here are the steps to follow for bank reconciliation:

• Review the bank statement and ensure that every charge has been accurately recorded in your general ledger account. If you're uncertain about a charge, contact the bank without delay.

• Examine the deposits that have cleared and compare them to those recorded in your general ledger account. Be aware that the last deposits of the month may not yet appear in the bank; these are referred to as outstanding deposits. If it seems to be a timing issue, it usually isn't problematic. However, if your accounting records indicate that a deposit was made earlier in the month and it’s not reflected by the bank, further research will be necessary.

Additionally, there may be deposits reflected in the bank statement that aren't included in your accounting records.

The most frequent example of this is online donations.

With online donations, your payment processor might automatically transfer funds into your checking account. If this happens, ensure you log into your online donation processing software to record those donation "batches" or "payouts," and restart your bank reconciliation. Remember to open each "batch" to review the fund assignments and assign them correctly in your accounting software.

I prefer to record the "gross" donation amount in my accounting software and list the "processing fees" as a negative amount (assigned to the appropriate expense account), ensuring that your "net" amount aligns with your actual bank deposit, especially if your online donation processor deducts fees before making deposits.

Next, compare each check you’ve written against those that have cleared your bank. List any checks not on the bank statement as outstanding checks. For any checks appearing on the bank statement but missing from your accounting records, investigate further. Were they approved and signed by an authorized individual? If so, determine why they weren’t recorded.

Once you have identified the outstanding deposits and checks, you will be ready to finalize the reconciliation and begin generating your financial statements.

Bank Reconciliation Steps

The majority of accounting software is designed to streamline your monthly reconciliations for a hassle-free experience. Check your software’s instructions or reach out to their support team to learn how to reconcile your accounts. (Refer to the section below for guidance on reconciling QBO.)

If you have to do it by hand...

• Set up a spreadsheet and input the ending balance from the bank statement. There is one in the Spreadsheet Package.
• Add the outstanding deposits to this balance.
• Subtract any outstanding checks.
  

The ultimate goal is to achieve a balanced cash account in your accounting records.

If the amounts do not match, you will need to review all entries in the general ledger and compare them with the bank records.

A common mistake is a transposition error. For instance, if a check was issued for $78 but recorded as $87, this is a transposition. If the discrepancy is divisible by nine, it likely indicates a transposition error. Carefully compare each check and deposit listed on the bank statement to identify the error.

If there are outstanding checks from the previous month that have not cleared, your reconciliation will be off balance. Check the prior reconciliation to ensure that all outstanding checks have cleared this month. If any remain uncleared, add them to the outstanding checks list.

Now that your bank and accounting records are reconciled, there are still a few steps to complete...

Examine the reconciled items for any outdated or unusual entries. It’s not uncommon for checks written toward the end of the month to still be outstanding, but if you notice checks that should have cleared by now, investigate the reason. Reach out to the person or company involved, as the check may have been misplaced or lost.

QuickBooks Bank Reconciliations 

Bank reconciliations in accounting software are generally much simpler than reconciling with spreadsheets.

In both QuickBooks Online (QBO) and QuickBooks Desktop, the process is quite straightforward.

There are numerous YouTube videos and articles available that guide you through reconciling your accounts in these QuickBooks products. Here’s a brief tutorial on reconciling QBO, which I frequently use for my clients. If you require more detailed instructions, feel free to search online!

To begin in QBO, navigate to the left column and select "Transactions," then click on "Reconcile" in the pop-up window...or just "bookmark" it and it will appear at the top of your Navigation column.

Enter your ending balance and closing date. Most of the time, it involves simply clicking on all the deposits and payments that appear on your bank statement. QBO currently automates the selection of all transactions that have cleared your bank within the specified timeframe, so you won’t have to manually check off each deposit and expense unless the amounts don’t balance out. However, I strongly recommend ensuring that each check number aligns with the bank statement before completing the reconciliation.

It’s also crucial to carefully review each transaction in the bank reconciliation window. Confirm that each one appears to be an "ordinary and necessary" expense for your organization. If anything seems unusual, take the time to investigate!

Tip: Keep a copy of the Reconcile Report filed alongside your bank statement.

Another helpful tip is that you can now view bank statements within QBO for certain banks and credit cards! If you see a "View Statements" button in the reconciliation tab, as shown in the image above, click it to download your bank and credit card statements.

There are multiple ways to access the reconciliation window in QBO, but I prefer using the left navigation column. If I’m already in the register I want to reconcile, it’s easier to click on the green "Reconcile" button located in the top right corner.

Final Financial Statements Preparation

Resource:
Church Accounting, The How to Guide for Small & Growing Churches by Lisa London and Vickey Boatright Richardson