The reconciliation process is the last step in the accounting process to ensure you’ve recorded everything properly in your money related accounts. Since most accounting entries run through bank accounts, reconciling is your final check to make sure you’ve accounted for the majority of your business transactions.
If done properly, the reconciliation makes sure the books are complete and that there are no duplicates.
Any honest bookkeeper will tell you that finishing a reconciliation and seeing that balance fall to zero is a thrill. There is such satisfaction in finishing up a month of work and closing out the accounts with reconciliations.
Without further adieu, an Homage to Reconciliations … otherwise known as “Things you can reconcile”:
Cash Accounts -. Properly keeping the books needs to include reconciling every cash account – every month – against a bank statement.
PayPal Accounts – PayPal is another type of cash account and needs to be classified as such on the balance sheet. PayPal reconciliations can be tricky. Be sure to keep an eye out for transaction fees and processing holds. You’ll find this information listed on their monthly statement.
Clearing Accounts – E-Commerce has introduced us to a multitude of new payment methods – think Amazon, Shopify, and Stripe. The month end balance in these accounts is an asset to the company and can be accounted for in a clearing account. The clearing account should be reconciled against a month end statement from the processor.
Credit Cards – Like bank accounts, utilize the bank feeds to post transactions in “real time” each month as they post to the account. Before reconciling, make sure interest charges are posted to the credit card’s liability account.
Loans – Business Loans and lines of credit are two examples of loan accounts. While the number of transactions each month is usually low, a reconciliation against the lender’s statement will ensure principal and interest payments are recorded properly.
Be on the lookout for these items when reconciling accounts:
- Items that are outstanding for a long while (think checks, paychecks) should be investigated after a couple of months.
- Be aware that many states have escheatment laws that dictate how a company must treat uncashed checks.
- Duplicate credit card or loan payments. This happens when the payment is recorded in the cash register and then again in the credit card or loan register. If it’s recorded right the first time, it will automatically show up in both accounts.
- Uncleared credit card transactions that are more than a month old are most likely duplicates. Delete and move on.
- Pay close attention to deposits. If a company uses accounts receivable, deposits should be applied to open balances with customers rather than being coded straight to income. While this won’t affect your bank reconciliation, it will overstate revenue.
- Modern accounting software has functions to download cleared bank and credit card transactions daily. By activating these modules, you are essentially reconciling cash and credit card registers during the month. The formal reconciliation at month end will be a breeze.
Take the extra time at year end to investigate old, outstanding transactions and get everything cleaned up before closing out the year. It’s easier to correct items in the current year before the taxes are filed.
If this all seems like a bit much, and you’d rather focus on other areas in your business, don’t hesitate to reach out– after all, reconciliations are music to an accountant’s ears.