Bookkeeping 101: All About Account Reconciliation
December 16, 2020
What is account reconciliation?
- Definition of account reconciliation
- Importance of account reconciliation
- Tips on account reconciliation
Bookkeeping in its simplest definition is the process of keeping records of financial transactions. Most companies have to hire accountants and bookkeepers to keep up to date with all monetary information. This involves tracking income, expenses, payroll, and account reconciliation. The first three are common terms. But what about the last one? To learn more about reconciliation, keep on reading!
Definition of Account Reconciliation
According to the dictionary, one of the definitions of the word ‘reconciliation’ is “the process of making something consistent or compatible”. For bookkeeping, this is applicable by matching internal records with external information.
If you have savings and credit card accounts, you may be familiar with this process. Internal records are your debit and credit card receipts, and the external information you will compare them to are your bank account statements.
Most companies have their bookkeepers to do this job. This is because businesses have more financial information to keep track of. Internal information is kept in a ledger, which is also called the ‘book’ of financial accounts.
Importance of Account Reconciliation
Through this process, you can check whether or not all the financial records you keep match the actual financial transactions that have taken place. This way, you can catch any errors in computation and documentation early.
Having discrepancies happens more often than you can imagine. You may not keep track of additional expenses such as bank fees, delivery charges, or small payments that may have been easily forgotten. Sometimes transactions can also be missed and not recorded immediately.
Without account reconciliation, your company could be experiencing financial losses. You can’t track double payments or overcharges. In the worst-case scenario, someone could be making fraudulent transactions with your bank account.
Tips On Account Reconciliation
To make the process smoother, here are some tips you can follow whether you’re doing a personal or business-related reconciliation.
Always Be Consistent
The key here is to always reconcile your records on a schedule. You can do things on a daily, weekly, monthly, or yearly schedule. This will depend on the number of transactions you need to handle, and the timing of when deposits and withdrawals are posted in your bank accounts. If you neglect this task for too long, it may lead to forgotten expenses, lost receipts, and more work.
Don’t Be Afraid To Ask For Help
When you have a growing company with numerous transactions happening daily, hiring additional help is a good idea. Accountants are trained in school to handle your financial records and keep track of any discrepancies and errors. As the owner, your job is to educate yourself on bookkeeping processes so you can double-check the documents and prevent any fraud.
Account reconciliation is just a part of the bookkeeping process. It is done by comparing internal and external records so that balances are equal. Through this, you can spot errors, forgotten transactions, double payments, and even frauds.
Accounting is an important practice in handling both personal and business finances. This can help you budget your money, track your expenses, and pay your taxes on time.
If you need more information on bookkeeping and business, you may message Benito Keh. As a successful entrepreneur in the Philippines, he can help you manage your accounts and give you tips to grow your company.