By keeping accurate and up-to-date records of your business, you can make sure that your bookkeeping is in order and you have all the information necessary when it’s time to file taxes correctly. However, for many entrepreneurs, bookkeeping may feel like a daunting task, especially if you don’t have a background in accounting. One important aspect of bookkeeping is account reconciliation, which is the process of ensuring that all accounts match the expected balance.
Reconciling your accounts allows you to verify the accuracy of your financial statements and detect any errors (or fraud) quickly, before you face significant consequences. In this post, we’ll explore what account reconciliation is, why it’s important for businesses, and how to complete this task effectively.
What Does Account Reconciliation Involve?
The account reconciliation process involves your business’s recorded transactions. This includes the verification of invoices and receipts, the comparison of bank statements, and the review of other related documents. A bookkeeper would review each transaction, verify it from another source, watch out for any amounts that have gotten lost, and make sure no information is contradictory. For example, if a customer hasn’t paid an invoice but someone entered it into Quickbooks as paid, your numbers won’t match. But a bookkeeper would catch that and correct it.
Reconciling Your Accounts Benefits You In So Many Ways
Reconciling accounts is especially helpful when there are discrepancies between your account balance and what your bank statement says you’re supposed to have in your account at the end of the month (which is always a frustrating thing to realize). This also streamlines the process of filing taxes and preparing for an audit, as you have done all the work already. Now you can relax.
Additionally, if your accounts are contradictory and full of holes, your financial statements will be too. And if you’re making business decisions based on flawed financial statements, get ready to make some costly mistakes.
Neglecting to reconcile your accounts also makes you an easy target for fraud. An employee or client could be stealing money from you every month and, if you had a habit of seeing mismatched numbers in your accounts yet letting them be, you’d never know you’re being defrauded.
In contrast, by keeping your accounts accurate and up-to-date, you know you’re operating responsibly, making savvy decisions, and protecting your assets.
So How Do I Reconcile My Accounts?
Here’s a step-by-step guide:
1. Gather all documents relevant to your business’s transactions, such as invoices, receipts, and bank statements.
2. Review each transaction individually to check if it corresponds with its respective statement.
3. Make any necessary adjustments or corrections as needed.
4. Compare the records to your bank statement and other documents to make sure everything matches up.
5. Write down all the changes in a reconciliation journal and store it for future reference, if needed.
Bonus: Once all transactions are verified and updated, you can close the reconciliation process by signing off on the document and filing it away in an organized fashion for later review.
The Takeaway:
Reconciling your accounts allows you to verify the accuracy of your financial statements, which can easily save you money in several ways. A bookkeeper should review each transaction, verify it from another source, watch out for any amounts that have gotten lost, and make sure no information is contradictory. For many entrepreneurs, this may feel like a daunting task. By following these steps, you can ensure that your accounts are reconciled properly and keep your business running smoothly! On the other hand, you could let us handle it; our certified bookkeepers have reconciled accounts hundreds of times, so no issue escapes their expertise. Call us today for a free consultation, and we’ll share a personalized plan to solve your problems.
