If we lived in a perfect world, we’d be able to look up your business’ bank balance and it would match your accounting records, giving you a real-time picture of cash available to your company. However, paper check often creates timing differences, but consistent bank reconciliation provides accounting records that are clear, reliable, and up to date.

What does it mean to reconcile an account? Reconciliation is the process of reconciling the account statement balance, with the book account balance in the company’s book of accounts. The purpose of reconciliation is to identify and rectify discrepancies between the two account balances.

What does a bank reconciliation show a business owner?

• It gives you up to date company records at the end of each month or period.
• Prevent overspending by keeping strict accounts of cash outflows
• It helps identify any error in the cash account.
• It helps eliminates transactions on the bank statement in error.
• Detect and prevent embezzlement of funds from within your company
• It can protect you to identify potential unauthorized, fraudulent or forged check in a timely manner to notify the bank which may allow you to relieve your business of responsibility for the shortfall as well as transfer the risk to the bank.

Should I reconcile any other accounts besides my cash account? Yes, credit cards and business line of credit have become substitute bank account especially in small businesses.

What does a credit card and line of credit reconciliation show a business owner?

• It helps you identify the following:
• Duplicate charges
• Unauthorized purchases
• Incorrect posting amounts in your books and statements
• Determine the company true liability although transactions may not have been recorded yet.
• Account for online purchases or purchases with missing receipts.
• Helps an owner manage the company credit more effectively and minimize interest charges or late fees.

Most business owners who do not reconcile the company’s account will not have a reliable vision of how much cash is truly available. The financial reports may be under or overstated since income and expenses may be missing or duplicated. Checks you’ve written may have been sent to the wrong address, lost, or just never cashed. Sometimes an item is missed and goes unrecorded. You simply can’t ensure that you’re aware of all these discrepancies, or account for the differences and able to explain them if a reconciliation is not completed.

In conclusion, the purpose of reconciliation is to introduce efficiency and transparency in the company’s accounting records. It is highly worthwhile to take time and do them, as it helps in avoiding many financial situations as mentioned previously. Reconciling will make tax time a breeze. You will not have to dread tax time because you will have 12 months’ worth of transactions already reconciled and the company’s financial statements will be completely up to date.