Why You Need To Reconcile Regularly
Let’s talk about reconciling your account(s) on a regular basis and why it’s necessary for not only your bookkeeping, but your business. First, what does it mean to reconcile your account? This means you compare your books to your bank accounts over a period of time to make sure everything aligns perfectly (example: comparing your records to your bank account from March 1 - 31, 2019). If there are any discrepancies, you can catch them and act on it. Also, note that you only need to reconcile your accounts if you use the accrual method of accounting. If you use cash basis accounting, then every transaction is recorded at the same time as the bank, so there are no discrepancies.
There are four big reasons you need to reconcile your account(s) on a regular basis.
- To see your business for how it really is. The numbers don’t lie. Look at what your books are telling you.
- Track your cash flow. This will help you make informed financial decisions.
- Detect fraud. Reconciling regularly ensures you’ll catch any questionable activity sooner rather than later.
- Find bank errors. This isn’t very common, but it can happen. Once again, it’s better to catch it sooner than later.
If your books aren’t up-to-date, reconciling is a waste of time. It won’t be accurate. It’d be better to focus your time and energy on catching up on your books. Keeping accurate, specific, and timely records are vital for an accurate reconciliation.
How often you should reconcile is dependent on how often money comes and goes out of your business. Some businesses with constant transactions throughout the day will reconcile daily, like restaurants and retail stores. For the most part, you should be reconciling between weekly and monthly. The longer you wait, the more transactions you have to look at.
If you decide reconciling isn’t for you, we’d love to help. :)