Complete the file & reconcile!

One of the most important duties that I see many businesses forget to do is the reconciliation of bank and credit card accounts.  When I get a set of accounting records from a client, many of them will say that “their books are done”.  What they actually mean by that statement varies from one client to the next - but what it typically means is that they have categorized all the transactions for the year that their accounting software prompted them to categorize.  However, almost all of them forget to do the final step of their bookkeeping process - which is reconciling their books to their bank statements.  This last, and often overlooked, step is crucial to making sure you have actually captured all of your activity for the year.

So what does reconciling your bank statements actually mean?  The steps in doing a bank reconciliation will vary depending on the accounting software that you use and many accounting programs (like Quickbooks Online) have a bank reconciliation feature built in them.  The reconciliation step helps you verify that each of the transactions that hit your bank account (per the bank statement) also was recorded in your accounting software.  It also makes sure that every transaction that was included in your accounting software also hit your bank account.  

Now, I know what you are thinking… shouldn’t this happen automatically when I categorize my transactions in the first place?  And the answer to that is YES!  It absolutely should… but it doesn’t always.  Some common things that I see are:

• Duplicate transactions that were recording in the accounting software due to software glitches

• Duplicate transactions that were recording in the accounting software due to incorrect transaction matching or other user error

• Missing transactions in the accounting software do due software glitches

• Missing transactions due to bank accounts disconnecting from bank feeds (typically due to a change in bank account passwords)

• Missing transactions of credit card accounts due to a new credit card being issued

There are other reasons why your accounting records might have duplicate or missing transactions - but I think the above items illustrate why your accounting program might not have accurate information simply by categorizing transactions from the bank feeds without also doing a bank reconciliation.

Another important reason to reconcile your bank account is to make sure you know how much cash you actually have available.  This is particularly important if you write a lot of checks - as you may have issued some checks to vendors that haven’t been cashed yet.  If you write your checks from your accounting software then doing a bank reconciliation will help you to not only verify the transactions that have already hit the bank account but it will also let you know how much money you have in uncleared transactions due to checks still uncashed.

I encourage every business owner to do their bank reconciliations on a monthly basis.  If you aren’t already doing this then start now.  It typically doesn’t add much time to your accounting process as all your transactions should get included automatically through your bank feeds and categorization process.  However, there will be times when you have duplicate or missing transactions.  Catching those discrepancies on a monthly basis will help resolve those issues early and will help you have more accurate accounting records that will help you monitor and manage your business and cash flow better.