Reconciliation In Business Accounting — Are You Doing This Important Step?

For business owners, knowing that your financial information is accurate is the only way you can make good decisions with confidence. And one key to that confidence is reconciliation. What is reconciliation? How can you apply it in your business accounting? And where can you find help? Here's what you need to know.

What Is Reconciliation?

Reconciliation is the process of comparing two sources of information to verify that the final results of both are the same. In accounting, it generally means confirming that the actual amounts of money gained or spent match what's recorded in the books for the transaction. Reconciling may be done using receipts, outside documentation, contracts, or other original sources. 

What Is Reconciled in Accounting?

One of the most common types of reconciliation in accounting is bank statements. The company consults its internal records of the bank balance and transactions, comparing these to the bank statement provided by their institution. Discrepancies — positive and negative — are accounted for one by one until both sources show the same ending balance. 

You may also reconcile specific accounts, such as tax accounts. An employer may withhold payroll tax money to be remitted on behalf of its employers. Then, on the due date, the tax forms are completed and calculations are done using these as an independent source of information. If the tax remittance accounts do not match the form calculations, the company must determine why and make needed changes. 

Reconciling can be done for accounts payable or receivables by manually verifying amounts on invoices to the transactions recorded. You may also reconcile credit card statements by comparing these to physical receipts to ensure no unauthorized transactions occurred and that all charges have been included in the books. 

Do You Need Help With Reconciliation?

If your small business has not been reconciling these or other transactions, it can be challenging to get started. You may need to reconcile prior months to get an accurate starting point for current ones. Or you may need assistance learning how to do reconciliation on different software. And learning how to effectively research discrepancies will speed up your work in the future.

Where Can You Start?

No matter whether you've tried reconciliation in the past or are new to the concept, the best place to begin is by working with a qualified business accountant. They can help you get your current books to a point where reconciliation is possible and even take on some of the actual reconciling in the future. Call today to make an appointment for business accounting services.