Why Is Reconciliation So Important?

| 2 min read

Why Is Reconciliation So Important?

Reconciliation is simply comparing various sets of information and ensuring that they agree with each other. It is sometimes an overwhelming task that is often avoided or overlooked in a small business. This results in missed discrepancies that compound over time and end up being a mess at tax time. Reconciling regularly catches these inconsistencies before they become a big problem. This saves time and money.

It is also essential to understand that reconciliation is part of best accounting practices and helps to ensure that books are legally correct. Not only is the IRS concerned about your numbers being up to date, but investors and employees also want to know your business is stable. Robust accounting reconciliation processes present concrete evidence of financial security.

Ways to Improve Your Process

Years ago, manual accounting was the only choice available. With multiple spreadsheets, human errors were inevitable. With today's modern technology and the affordability of many small business software options, it is always wise to consider either using a platform to do your bookkeeping or outsourcing it to a professional service. If you use an independent company to do your reconciliations, it provides segregation of duties by an impartial party. This is the preferred method for best practices.

Choosing to do your own reconciliations or hiring a bookkeeper or accountant to do them means accounting procedures need to be in place. Things to think about:

  • Entries must be done daily or at least weekly (If your software automatically uploads these like QuickBooks Online, matching is more effective weekly).Account reconciliation
  • Reconciliations should occur monthly or more often for larger companies or those with excessive amounts of transactions daily.
  • Balances must match in the General Ledger, the financial reports, and the bank/credit card statements.

Three Steps to Effective Reconciliations

Regardless of who performs the reconciliations, there are three major steps to completing accurate reconciliations:

  1. Identify discrepancies. In nearly every circumstance, there are items that are either missing or entered incorrectly. The purpose of reconciling is to ensure these differences are fixed.
  2. Investigate dissimilarities. Sometimes the inconsistency is related to timing. An uncleared check isn't going to appear on the bank statement but is already entered in the bookkeeping software. When the check clears, the transactions agree.
  3. Resolution. - In situations where a mistake is made, a competent bookkeeper finds the error and corrects it. Simply stating the problem doesn't fix it so the resolution always results in an actual reconciliation. Again, balance matching in the General Ledger, financial reports, and statements is the only true reconciliation.

Standardizing Your Reconciliations

With financial automation (bookkeeping software), creating a standardized procedure for reconciliations is easier. Automated processes such as QuickBooks Online keep the financial flow going and help reconciliations to be done quicker.

Other benefits of accurate reconciliations include:

  • Less risk of costly mistakes
  • Transparency for owners, investors, and employees
  • Avoids future problems with IRS audits
  • Catches fraud and hacking quickly, a real problem in the banking industry
  • Provides owners and management with real costs and profitability
  • Identifies areas of overspending and items that aren't profitable enough
  • Leads to effective forecasting and budgeting

While in-house bookkeeping (especially if the owner is doing it) seems less expensive than outsourcing, the errors that often occur make it a higher cost. Additionally, using an outsourcing company like SLC Bookkeeping results in one less concern for management. As reconciliation is a vital part of your company's financial health, proper entries and valid reconciliations equate to better accounting practices. 


An Affordable Bookkeeping Alternative to a CFO

Outsourcing your bookkeeping is more affordable than you would think. We save you money the moment you hire us by cutting out the expensive cost of hiring an in-house CFO.

Working with a remote bookkeeping service will still provide you with all the value you could get from an in-office bookkeeper but at a fraction of the cost.

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Learn How We Can Impact Your Business Growth

You’ve got your company’s best interest in mind. Guess what? So do we! You can rest assured that we will work closely with you to create actionable business plans and accurate financial reporting. We offer our toolkit of financial intelligence that will be your greatest asset for business growth.

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