What, exactly, is reconciling?

Part of the “everyday” life of a bookkeeper involves reconciling accounts.  It’s a fundamental step in ensuring accurate financials and one of the very first things we start with when working to clean up messy books.  It’s a critical piece of proper bookkeeping.

Lately I have realized though, that many business owners believe they are reconciling, but when we dig into their file, we see that either the reconciliation was not completed in the file (they just visually compared the statements to the file) or there are significant adjustments to each month to get the accounts to balance.  Either scenario creates a position where the financial reporting runs the risk of being inaccurate. 

Let’s start with the obvious question:  What, exactly, is reconciling? 

The fancy definition is that it’s the accounting process used that ensures that a company’s financial records account for and are consistent with the third-party reporting (bank statements).  It is the process that confirms that the credits and debits to the company’s accounts have been recorded and that the two balance at the end of a reporting period. 

But as I generally explain it – it’s making sure tech glitches and everyday life didn’t cause a skip in reporting which either duplicated or omitted transactions.  And trust me…. This can and does occur.

Things happen. 

It’s not uncommon for the business owner to rely on the bank connections in your accounting software, but it’s all very possible that the feed disconnected or had a hiccup.  If you hand enter transactions, it is possible you are missing a receipt or forgot to record a bill payment.  This is the step where you catch these things.

Balance is key.

It’s also important to ensure that your reconciliation balances out.  Often, we see where reconciliations were done but adjustments were entered to get the file ending balance to match the statements ending balance.  These entries should very rarely, if ever, be used.  Entering adjustments has it’s time and place – but typically are used at the end of the accounting period to ensure the entries comply with the accrual method.  Using an adjusting entry to force a month to close means there are transactions that are not being accounted for, which in turn means your reporting will be incorrect. 

What accounts get reconciled?

Many people believe this task is reserved for bank accounts only.  However, this should be done for ALL Balance Sheet accounts:  bank accounts, credit cards, loans, and even payment processing accounts such as PayPal and Stripe.  All of these should be balanced and reconciled every month.

What now?

Round up those statements and make sure you use the reconcile feature within your accounting software.  Proper reconciliation helps ensure the accuracy of your business’s financial records.  Reliable reporting enables you to make educated decisions within the operation of your business. 

If you are unsure or simply want a hand with this all to important task – reach out.  We are happy to help.