5. Fixing Mistakes in Bank Recs

I want to show you something real fast on this bank reconciliation problem that we worked through in the last video. So if none of this looks familiar, then you need to go back and watch the last video. But here's what I want to show you.

You may not get all of this right, okay? I think that's perfectly understandable that you may make a mistake. Now, the good news about bank reconciliations is that you'll know right away whether you've made a mistake or not. So you'll know: $4,955, $4,955. If these two numbers aren't the same, then you've done something wrong. Now, unfortunately, if they are the same, that doesn't guarantee that you've done it right. But about 90% of the time, if you come out with numbers that are the same, you can feel good about that. So the good news is you'll know immediately if you've done something wrong.

Now I wanna show you how you can kind of guess and still be okay. We're not gonna go back over the whole problem, but let's look at this one right here, this $75 mistake problem. So what if you had, instead of adding the $75 like you should, what if you got confused and, you know, had a tiny judgment error and said minus $75? This could totally happen. You could accidentally put minus $75. So what would your number be? You'd have the $3,900 plus the $1,025 minus the $10 minus the $35 minus the $75. So you'd get $4,805.

Now, at this point, you may be feeling pretty bummed out. You're on your test. You think, "I know all of this stuff. I'm gonna get an A." And you get to the bottom of your bank reconciliation, and you freak out because $4,805 does not equal $4,955. And at this point, my advice to you is take a breath. It's okay. You know how to do this stuff. Let's just see if we can figure out where the mistake happened.

The first thing that I want you to do is I want you to find out how far are you off, how wrong are you? So if we take the $4,955 and we take the $4,805, we'll find out that we're $150 wrong. That's step one. Now, don't go looking for $150, because you're either putting things on one side or you're putting it on the other. So if you made a mistake, you made a 2X mistake. Let's say that you messed up bank charge. This negative $10 should actually be over here, negative $10.

So that means this side is $10 lower than it should be, and this side is $10 higher than it should be, leading to a $20 mistake. So when you make a mistake, you're making a 2X mistake because not only did you put it on the wrong side, but you left it out of the right side. So if you make a mistake, find out how big the mistake is and then divide it by two. 150 divided by 2 equals, okay, 75. That means you put $75 in the wrong place somewhere. Now you can look back and see, are any of these $75?

Well, obviously, because it's a made-up problem, this one is $75. So we can know pretty confidently, this isn't foolproof, but pretty confidently, that this $75 is wrong. So then you've narrowed down from all of these numbers. You've narrowed down that the one statement you did incorrectly was this one. So you can go back and think harder about this one and think, "Shoot, why did I do minus $75? Why do I know that minus $75 is correct? Should it be plus $75, or should this minus $75 actually belong over here?" Because if you take this minus $75 and move it over here, this side goes up by $75.

This side goes down by $75, and then you'll end up equaling. This process will help you narrow it down. It'll narrow it down, hopefully to one entry. Now, if you've made three or four mistakes, this isn't gonna help you as much. If you've made one mistake, it's gonna stand out really easily. But if you've made two mistakes, it's gonna be a little bit harder. It's not impossible, but it's gonna be a little bit harder. Let's see if we can figure out what happens when you make two mistakes. So we already know that that negative $75 should be a plus $75. So we're gonna call that one mistake.

Then let's just, because we already kind of did it, let's just swap this around and say that negative $10 we accidentally wrote down as a positive $10. So our mistakes are now these two guys right here. And if we add those back up, we get $4,825.

So $4,825 is our new number, and we are on the test, and we think, "Shoot, I've really messed this up. So I'm gonna do what Aaron told me, and I'm gonna do $4,955 minus $4,825 to see how far off I am. Okay, I'm off by $130, but I know that since it's one side or the other, if I make a mistake, it's gonna be a double mistake. So if I divide 130 by 2, I get 65. Great, I did it. Now I'm gonna go find 65, and shoot. 65 isn't on here anywhere." None of these numbers are 65. So at this point, you're thinking, "Well, I've really gone and done it now.

I must have made two or more mistakes." And you have. You've definitely made two or more mistakes. But you still have a chance of salvaging the problem. You can still get the problem completely right if you can find two or more that add to 65. And this is where it gets less hopeful, because there could be a bunch of different combinations that add to 65. But you'll notice that 75 and 10, those add to 65 because the signs are different, right? So we have negative 65 and a positive 10 add to a negative 65. So the 65 matches the 65, so you can be relatively confident that you've messed up both bank charge and this accountant's mistake.

Now, of course, I advocate getting them all right the first time and getting a 100 on your test. But I'm also realistic and know, man, that may not happen. You may stress out on the test and forget one of these things. But I want you to remember that that's totally okay. If you've missed one, you're gonna be in great shape. If you've missed two, it gets a little bit harder, but you're still probably gonna be okay. You just need to figure out, how far away am I from being correct? If I'm $130 away from being correct, anytime I change one thing from a positive to a negative or move it from one side to the other, it's gonna have a double effect of up on one side or down on the other.

So if I'm $130 away, really, I'm only $65 away. Now, I don't see 65 anywhere, but I see 75 and 10, and because I'm a smart guy, I know that 75 and 10 can get me to 65. So now I'm gonna go back and review these two and see, are these signs correct? Did I put these things on the right side? Should maybe one of these be over there, or should it be a negative? And you always, always, always have this as your guide. When you get to the bottom, it's gotta equal. And if it doesn't equal, that's okay.

Calm down, see how far off you are, and then go investigate those statements and see what you did wrong.