If you're writing checks and having trouble reconciling your bank account due to timing differences, this article is for you.
If you've ever written a check from your business bank account, at some point you've probably run into a problem with your bank reconciliation. This is because Wave compares all transactions in the bank account to the bank statement balance; when it matches, hooray! Your account is reconciled. However, outstanding checks that clear after the bank statement closing date will throw your reconciliation off.
You can change the date on the check transaction to match the date it clears the bank, or simply use the imported transaction from the bank feed as your record and skip recording it ahead of time. There is another option though: using a Money in Transit account. Let's take a look at how that works.
How do Money in Transit accounts work in Wave?
You can find Money in Transit accounts in Accounting > Chart of Accounts, on the Assets page, listed directly under the Cash & Bank category. Transactions in Money in Transit accounts are included in the Cash Basis numbers for reports like the Profit & Loss and Balance Sheet, and they are also included in the Cash Flow report. Money in Transit accounts represent transactions that are headed to or from your bank account, but just haven't cleared yet, so for accounting purposes these transactions are considered "cash" activity.
If you use Wave Payments, then you already have a Money in Transit account that is specifically designed for the process of accepting payments through Wave. This is an example of a transaction that has been initiated (an invoice was paid, for example), but is still in process (or "outstanding") until it appears in your bank account.
Setting up an account for outstanding checks
Navigate to Accounting > Chart of Accounts, and hit the Add a New Account button in the top right corner. Choose account type "Money in Transit" and name it something like "Outstanding written checks." Click Save.
The Money in Transit account currency should be the same as the bank account the checks are written from.
Handling an uncleared check
You can continue recording checks you've written as usual, using the bank account as the Account in the expense transaction. When you run into an uncleared check preventing a successful reconciliation, here's what to do:
- Identify the outstanding check on the Reconciliation screen. Click anywhere on the transaction line to open the details pane.
- In the transaction details pane, click the dropdown arrow next to the Account, and locate and select the "Outstanding written checks" account (under the Money in Transit heading).
- You'll see a warning appear that this transaction will no longer appear in this account; click Save. (Don't worry, we'll deal with that when the check clears.)
Now you've successfully reconciled your bank account!
Here's what it looks like on your reports:
- The expense is included in your Profit & Loss:
- And the bank account balance matches the bank balance, while the money in transit account balance equals the check that hasn't cleared:
When the check clears
When the check does clear your bank account, and the transaction imports into your Wave account (or when you upload your bank transactions), it's one simple step to record it properly.
Find the cleared check transaction and categorize it to Transfer to Bank, Credit Card, or Loan and select your outstanding checks account in the list that opens.
Now you can easily reconcile your bank account, the check is recorded in the proper time period, and the balances in your accounts are correct.
Remember: the transactions in your "Outstanding written checks" account will appear in all of your reports. The transfer between this account and the bank account is irrelevant for reporting purposes and won't appear.