According to the University of Washington, "Reconciliation is the process of comparing transactions and activity to supporting documentation. Further, reconciliation involves resolving any discrepancies that may have been discovered."
So, what is a reconciliation? A reconciliation is an ESSENTIAL part of bookkeeping that identifies and explains the differences between the entries in your accounting system and the transactions listed on your bank statement.
Why Reconcile?
For businesses, reconciling the books every month is the easiest way to verify cash flow, catch errors, and prevent fraud.
Fraud Prevention: Many fraudulent transactions are caught during the reconciliation process. The sooner a fraudulent charge or action is detected, the faster you can rectify the situation. Thereby avoiding extra bank charges and financial issues.
Cash Flow Verification: Reconciling bank accounts to your accounting software ensures that you have the most accurate financial picture possible for your company. Making decisions based on these accurate numbers will help your business thrive and grow. Ensuring you know your exact cash flow numbers can certainly help!
Identify Errors: Monthly reconciliations help business owners to catch any errors that may exist before a financial problem arises. Transposed numbers, misread receipts, and forgotten or mistyped entries in the check register are all common accounting errors that are easily corrected when caught in time. The last thing you want is to make financial decisions for your business based on incorrect financial data, which could quickly undermine cash flow.
When Should I Perform a Reconciliation?
Reconciliations are typically performed at period end. Frequently this works out to monthly, quarterly, and annually. Reconciliations should absolutely be performed before preparing your company's taxes to ensure that the correct numbers are being used.
Who Should Reconcile?
Typically your accountant or bookkeeper should perform your company's reconciliations. They have the proper knowledge to sleuth out issues and resolve them correctly according to your bank statements and software.
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