Reconciliations. No Big Deal, I Promise!
Reconciling is one of those words that sound like something a whole lot more complicated than it really is. I promise! The act of reconciling your accounts is simply checking off the transactions that are in your accounting system/ records against what your statements show. That’s it!
To carry out a reconciliation, we are looking to match the account balance on your balance sheet to your bank, credit card, or loan statements. You are simply looking to make sure every transaction is accounted for. Without reconciliations, 1 transaction in the wrong spot can mean you’re double-counting something OR even missing some business expense along the way – which means you lose money at tax time.
How to Reconcile an Account
Having a good system in place for maintaining receipts, account statements, and other financial documentation is integral to supporting the reconciliation process.
- Booking transactions
The first step when working on a set of books is to record transactions in the accounting system against the bank or credit card they are processed through. If your system is set up to pull in transactions from the banking area, some of this may happen automatically, but clearing all transactions first is necessary to move on to the next step.
- Compare the deposits
Check your deposits are listed accurately, pointed at the correct customer and income account. If all the deposits checked off equal the total deposits listed on the bank statement, you’re good to move on to the next step!
- Work on the withdrawal side
Depending on your line of business this side is most often (especially with credit card reconciliations) where the higher volume of transactions will be found.
Why are there still transactions in the reconciliation window unchecked?
Often times there are transactions leftover (unchecked) after reconciling. This can be the case for a number of reasons.
1. Errors.
Check it! Open the transaction and find out if it was received or paid through a different account, or maybe not at all. By keeping your books up to date and not scrambling to catch up once a year you’ll find things like this in a timely manner giving you the ability to deal with it right away.
2. Deposits in transit.
Sometimes this could be because you deposited them days after the reconciliation date. If this is the case, you could leave it and check it off on the next reconciliation or move it to the undeposited funds account.
3. Uncashed cheques.
If you’ve written cheques but they have not hit your account, they’ll be in your reconciliation window but remain unchecked until you see them leave your account.
Having completed the process above and adjusted the balances on the books and as per the bank statement, everything should now balance!
With transactions pulling in either automatically or with manual .csv imports there is no reason for any reconciliation discrepancies. Gone are the days with a few cents off here and there.
How often should you reconcile?
It is recommended that your accounts are reconciled at least once a month, or whenever you receive a statement from the bank.
The more often you do it, the easier it is to do. There are fewer transactions to go through and it lessens the risks of any big mistakes not being found until it’s too late.
Have you reconciled your accounts lately?
