Reconciling — It’s More Than Just Checking Boxes
One of the most common things I see when reviewing reconciliations done by small business owners, or ad-hoc bookkeepers, is a lack of understanding on how to truly reconcile an account. When reconciling a bank or credit card statement, it’s usually fairly simple, one checks off what has cleared the account. But what is also important, and less common, is knowing what to leave as un-reconciled. These are the transactions that are left as outstanding after a statement reconciliation is completed. And the transactions that are left outstanding, are just as important as those that have cleared the account for the month.
When it comes to a bank statement, it is usually more cut and dry. If someone writes a check, and it does not clear the bank, it’s outstanding. But as you go along a few months, is that check still outstanding? Usually a bank will not clear a check after 6–12 months (dependent on the institution). Therefore, when reconciling the account, you should not keep it as open for more than the time your bank would leave it open. If a check remains as unreconciled for multiple months, it needs to be voided out of the checkbook and added back to the available cash balance. If a payment was made online, via online bill pay, that transaction should not be left unreconciled for more than the 2–3 days it takes to clear the account. If it is, it may have been entered twice, or there was a problem with the payment that needs to be addressed.
When it comes to reconciling a credit card statement, it is rare for transactions to be left unreconciled at the end of the month. Dependent on how those transactions are entered into the accounting software, there should be no more than a day or two’s worth of transaction left uncleared at the end of the month. Usually if transactions are left uncleared it is because they were entered twice. Thus, those duplicate transactions would need to be addressed to keep the credit card balance accurate on the company’s books. It is always good to keep those balances up-to-date for financial purposes, especially if they will be needed to apply for a bank loan or line of credit.
In a more digital and synchronized world, it is increasingly easy for accounting softwares to keep banking and credit card records up-to-date. And even easier in some programs to reconcile those accounts along with the bank feeds feature. With a program like Quickbooks Online, the bank feeds and reconciliation features work in sync, and make it almost a matter of a couple of clicks to bring in financial transactions, and then to reconcile those transactions at the end of the statement period. But if one is also manually entering any transactions, this synchronization may not always catch duplicates. That’s why it’s important to know how to reconcile. Catch anything that is showing up which should not be, address those items, and get the balances on the Balance Sheet to be truly up to date. When those financials are needed for more forward thinking planning and needs, it will make those next steps go more smoothly.
