The importance of account reconciliation

 Just how important is account reconciliation? If you’re running a small business-or even in your personal life-it can be easy to think, “I’ll just wait till the bank or credit card statement comes.” All you have to do then is put the information into your accounting software.

Right? Nope, not so much.

Reconciling accounts is one of the most basic and crucial tasks you need to perform, and is an important part of keeping your business running. If you do it right, you can avoid possible problems and headaches down the road.

What is reconciling, and why do I have to do it?

Simply put, reconciliation is checking the statements you receive against the records you keep yourself to ensure they agree. For most small businesses, this applies to four areas: bank statements, credit cards, accounts payable, and accounts receivable.

As for why, let’s start with the fact that humans do bookkeeping and humans are fallible, so sooner or later errors are made. No one catches everything. If there’s a fraudulent charge on your bank or credit card statement, it’s much more likely that you’ll notice when you’re reconciling accounts than if you were just downloading your bank statements with little or no review. The process gives you something against which to cross-check your books.

Reconciling payable and receivable accounts is fairly simple if done monthly. A quick check of the general ledger Accounts Payable balance against the aged payable journal total will tell if they are the same. If so, you’re done! Same for Accounts Receivable. But if the totals do not match, there may have been general ledger entries made that did not get linked to a vendor or customer. If that is the case, you’ll have to go back through the account to determine where the error is, and that’s not so simple. 

When should you reconcile?

Reconciling your accounts should be something you do every month at the bare minimum. I usually do mine every two weeks, and if I’m in a particularly high-activity period or have a lot of unusual expenses, I might even do it every week. But at the very least, it should be done once a month. Statements come out on a monthly basis, so go with that schedule. Check your balance sheet and your profit and loss and make sure your business books are correct.

This is the beauty of the double entry bookkeeping system: if something’s wrong, you can tell. During the reconciliations, you can quickly spot what doesn’t match up and make sure it’s corrected before someone like the IRS does it for you. And if your books are clean, you’ll have a much easier time finding financing if you look for a loan, too.

Keeping your accounts reconciled will help your business run more smoothly and give you peace of mind. You don’t have to guess how much money you have to work with or run around madly trying to pull together documents when it’s tax time. You can know. Start today, if you’re not already doing it, and keep your accounts reconciled.

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