Keeping the books for a small- to medium-sized business is overarching process that separates into individual tasks. Over my years as a bookkeeper, I’ve come to identify the No. 1 bookkeeping task you don’t want to leave out. Unfortunately, your financial reports are unreliable if you do. What bookkeeping task could be so important? Reconciling your books. Even in the days of online banking, it’s critical to do these reconciliations.
Flashback to Junior High Math Class
Most of us learned how to reconcile a checkbook when we were in junior high. Back then, it was fun to spend make-believe money on make-believe merchandise. To reconcile our account, we’d check off all of the transactions in our check registry and match them to the transactions on our bank statement. The same goes for financial reconciliation for businesses, just on a grander scale and without the make-believe money. (I have to admit, imaginary money would be pretty sweet!)
Reconciliation Verifies Financial Integrity
Reconciling your accounts verifies the integrity of your financial statements. If you hand me financial statements that aren’t verified, the numbers are kind of meaningless to me. Financial statements need to reconcile with, at minimum, these three accounts:
- Credit card statements
- Bank statements
- Loan statements
Accurate Financial Statements
Lots of things can happen to make a statement inaccurate. Through reconciliation, you can identify and correct the errors. Thereby, you create accurate, up-to-date statements. You can find inaccuracies, like duplicate transactions. Someone recorded a transaction two or three times without realizing it. You also can determine if transactions are missing, which often occurs when companies comingle business and personal finances.
Numbers Tie to Concrete Sources
A common misconception is that you don’t need to record a business transaction that is paid from a personal account. But you do! If you don’t record all business expenses, the expenses won’t be in your account register when it’s time for reconciliation. As a result, the statement will be inaccurate. If you want your financial statements to be believable, you need to complete the reconciliation process. Reconciliation ties your numbers back to something concrete like a bank, credit card, or loan statement. The numbers are verified to be accurate and up to date.
Solid Data for Business Decisions
If account reconciliation is something you prefer not to tackle yourself, consider having Prosperity Bookkeeping handle this critical task for you. Contact us to learn how we create accurate financial statements for clients. By partnering with Prosperity Bookkeeping, you can make your next financial decision with confidence and solid financial data. More about reconciling books.Numbers Tie to Concrete SourcesNumbers Tie to Concrete Sources