As a business owner, you likely already know how important accuracy and compliance are for the health and longevity of your operation. Account reconciliation is a key monthly financial process that compares internal financial records to external resources like bank statements, credit card statements, and other types of financial information. Matching these up to the last cent is critical. Why? Because validating the account balances your business carries in its general ledger against other independent calculations contained in sub-ledgers, bank statements, and AR schedules can ensure completeness and accuracy of your company’s books.
In this post, we’ll cover the importance of account reconciliation in business and offer tips to help avoid discrepancies in the process that could lead to more headaches and problems down the road.
The reason why most shudder at the thought of having to do account reconciliation themselves in the midst of running the actual business is that failing to do so creates the potential for problems with governing bodies. The process is already time-consuming and complicated so it only adds when you don’t catch unusual transactions that are caused by fraud or accounting errors early enough.
For this reason, most businesses will turn to an accountant they can trust to handle account reconciliation activities. Their goal is to confirm that accounts in the general ledger are consistent, accurate, and complete for the business.
When should accounts be reconciled?
The best practice when it comes to account reconciliation is to do the job at the end of every fiscal month and quarter as well as annually. This should include the review of both documents and analytics to ensure accuracy and provide key insight for the business financials and projections.
What can lead to account differences during reconciling?
The problems that can arise with reconciling begin as soon as discrepancies are found. Oftentimes, these are caused by changes made to transactions that have already cleared in prior reconciliations. Having to go back and search for those transactions can take time. Other typical errors like making an entry twice without realizing it or forgetting to enter a transaction, end up having a domino effect, skewing calculations, and causing the final totals to be off. This leads to more searching for a needle in a haystack.
What are the challenges involved in account reconciliation?
In addition to everything we’ve mentioned about account reconciliation, it’s also resource-intensive – especially if you’re trying to do it all manually with spreadsheets and pen and paper. This not only makes reconciling prone to errors, but it also adds more time and resources to trying to get the job done. Increasing costs without safeguarding the data from fraud.
How do you know if you have correctly reconciled an account?
If you’ve done the account reconciling correctly, you can spot it easily by taking a look at the ending account statement from last month and comparing it to the beginning balance of your ledger for the current month in your accounting software. The numbers should match.
At DOAAR, we help small business owners perform monthly reconciliations to ensure credit and bank card statements align with data in bookkeeping software. Essentially, we take care of the details so that busy entrepreneurs can focus on their business. Learn more about our Bookkeeping Services.