And why is it so important?

Proper reconciliation is essential for the financial health of your business, as it helps detect errors, discrepancies or possibly fraud.  Bank reconciliation statements ensure that client’s payments (income) have been collected and vendors payments (expenses) have been processed. The reconciliation statement helps identify differences between the bank balance and book balance, in order to process necessary adjustments or corrections. To perform a bank reconciliation, you need a few items including a bank statement and your internal accounting records.

Your bank statements have a beginning and end balance each month. We work with those to get your income and expenses accurately recorded.  This helps to avoid overdrafts on cash accounts, finds fraudulent or overcharged credit card transactions, explains timing differences, and highlights other negative activity, such as theft or incorrectly recorded income and expense entries. Overdraft fees are diminished because you have a sense of your cash flow and improper spending concerns.  Embezzlement is a real problem and reconciled books by a trusted bookkeeper can eliminate these concerns.

Reconciling accounts and comparing transactions also helps your accountant produce reliable, accurate, and high-quality financial statements. Because your company balance sheet reflects all money spent—whether cash, credit, or loans—and all assets purchased with those funds, the accuracy of the balance sheet strongly depends on the accurate reconciliation of your company’s financial accounts.

When you use accounting software to reconcile accounts, the software does most of the work for you, saving you a good deal of time. A clean chart of accounts is pertinent, and a trained bookkeeper is necessary to capture certain transactions. These five steps will help you make sure all of your money is accounted for.

  1. Compare your internal account register to your bank statement to get a starting balance.
  2. Confirm your deposits/income/payments to loans.
  3. Confirm all expenses/outgoing funds
  4. Check for bank errors or discrepancies.
  5. The ending balance on your bank statement should equal the balance in your records.