Importance of Reconciliation in Bookkeeping
Reconciliation for bookkeeping is an essential process that ensures the accuracy and completeness of a business’s financial records.
With a full year’s worth of bookkeeping, there can be many transactions to keep track of, making it challenging to know whether everything has been correctly recorded.
Methods of Reconciliation in Bookkeeping
To ensure that all transactions reflect accurately, businesses use several methods to reconcile accounts.
Bank and Credit Card Reconciliation
One such method involves ensuring that bank and credit card accounts align with the account statements. Additionally, reconciling asset and liability accounts with source documents like asset purchase receipts and loan financing statements and terms is crucial.
Clearing Account Reconciliation
Clearing accounts used in accounting software to bridge the gap between integrated apps and bank accounts are also checked to ensure that all activities eventually flow to zero, allowing for date variances, recording of app fees, and account splitting.
Vendor Statement Reconciliation
Confirming that vendor statements received for accounts payable align with bills and credits entered into the accounting system, including agreed-upon terms, quantities, and prices, is also essential.
Lastly, ensuring that payments received have been recorded correctly in the accounting system to pay off invoices already recorded and to confirm that system recorded transactions have been recognized correctly is crucial for accounts receivable.
Benefit of Reconciliation in Bookkeeping
The primary benefit of reconciliation is the confidence it brings to a business owner that their books are complete. By verifying that the transactions shown on bank and credit card statements are correctly recorded, businesses can rest assured that they are not missing any vital information in their books. Reconciling also ensures that purchases, deposits, and transfers are allocated to and from the correct accounts, removes duplications, and adds omitted items.
Proper Process of Reconciliation in Bookkeeping
The process of reconciling is not about ensuring that numbers balance, but rather, it is a verification that both sets of data agree with each other.
Avoiding Shortcuts for Summary Journal Entries
A “shortcut” method of posting one transaction to reflect the pages of transactions on a bank statement is not a true reconciliation and does not bring any added value to the business owner. Instead, reconciling each specific accounting transaction in the business accounting software, including each purchase, sale, and transfer, makes the referencing and matching to an account statement at the end of the month more straightforward. Shortcuts like summary journal entries can end up wasting valuable time and lead to errors down the road. Therefore, it is advisable to stay far away from using this kind of data-entry style in bookkeeping.
In the end, in the accounting realm, a clean set of reconciled accounts are a good indicator of conscientious and reliable record-keeping. You’d be hard-pressed to find a bookkeeper who doesn’t like the satisfaction of completing a bank or credit card reconciliation. To quote a favourite author of mine, Gabriel Garcia Marquez, “One minute of reconciliation is worth more than a whole life of friendship!”
Yes, it’s something like that!
Are you struggling to keep your financial records in order? Implementing proper reconciliation techniques in your bookkeeping can save you time, prevent errors, and provide you with a clear picture of your business’s financial health.
With accurate financial data, you can make informed business decisions, maximize profits, and set yourself up for long-term success.