The Loan That Said $152K When He Only Owed $14K: Why Year-End Reconciliation Matters
Your bank accounts balance, so your books must be right. Right?
That's what one of our clients believed. He'd been doing his own bookkeeping in QuickBooks Online (QBO) for years. Every month he reconciled his bank accounts, and everything matched. As far as he knew, his books were in good shape.
Then he applied for a new loan.
The Question He Couldn't Answer
The new lender went through his accounts and asked a simple question: why was he looking for more borrowing when he still had $152,000 outstanding on an existing loan?
The problem was that he didn't owe $152,000. He owed around $14,000.
He knew the figure in QBO was wrong, but he couldn't explain why. He couldn't show the lender where the number came from. That's when he called us.
What Went Wrong
When we dug in, the cause was clear. He had only ever reconciled his bank accounts. His loan accounts had never been reconciled against the lender's statements.
At year end, his accountant prepared the accounts and found figures that didn't add up. To make everything balance, the accountant posted journal entries. That's normal. An accountant's job at year end is to produce accurate accounts, and journal entries are how they do it.
But there's a catch many business owners don't realize. A journal entry can fix the year-end figures without fixing the underlying records in your QBO. One of those entries, posted in a previous year, had knocked the loan balance out. Nobody reconciled the loan account afterwards, so the error sat there, year after year, quietly growing more confusing.
If the loan account had been reconciled properly each year, the $14,000 balance would have been accurate, and the lender's question would never have come up.
What It Cost
This one unreconciled account affected:
- Tax: figures based on inaccurate balances can lead to the wrong numbers being reported.
- His loan application: the new lender saw a business that looked far more indebted than it was.
- The value of his business: overstated debt makes a business look worth less than it is.
There was also the cost of putting it right. Unpicking years of entries takes time, and time costs money.
But in my experience, the biggest cost is often not financial. It's the worry. It's the feeling of looking at your own books and not understanding them. It's sitting in front of a lender and not being able to explain your own numbers. That uncertainty is stressful, and it's completely avoidable.
“My Accountant Will Sort It Out”
This is one of the most common things I hear from small business owners who do their own books. And in a sense, it's true. Your accountant will sort out discrepancies at year end.
They'll do it using journal entries. The accounts they file will balance. But your QBO won't necessarily be accurate, and you'll be the one left trying to make sense of it later.
Your accountant can fix the year-end numbers. Only proper reconciliation keeps your books right all year round.
Reconciling the Bank Isn't Enough
Bank reconciliation is essential, but it's only part of the picture. Before the books are closed at year end, these accounts must all be reconciled:
- All bank accounts
- Credit card accounts
- Loan accounts
- Payroll accounts
- Undeposited funds
- Tax accounts
Each of these can hold errors that your bank reconciliation will never pick up. A loan payment split wrongly between interest and principal, a customer payment stuck in undeposited funds, a payroll liability that never cleared: none of these will show up when you tick off your bank statement.
How We Put It Right
For this client, we reconciled his loan account properly and brought his QBO back in line with what he actually owed. Now we help him keep all of his accounts reconciled, not just the banks, so his books tell the true story.
He can open his QBO and understand what he's looking at. When a lender, the IRS or a potential buyer asks a question, he has the answer.
Is Your Year End Ready?
If you do your own bookkeeping in QBO and you've only been reconciling your bank accounts, now is the time to check the rest, before your year end and before your accountant starts posting journal entries.
At KW Bookkeeping Services, we help small business owners reconcile every account and get their QBO accurate, so there are no surprises at year end or when the lender comes calling.
Book your year-end reconciliation review today using the button below, or email us at info@kwbookkeeping.services.