It’s not uncommon for business owners and professional accountants to make mistakes when recording financial transactions. Mistakes are bound to happen, but when they involve finances, it can have catastrophic results for the respective business. Entering a lower amount for a credit, for example, will lower the business’s income — at least on paper. While there’s no way to completely avoid mistakes when recording your business’s financial transactions, reconciliation will allow you to fix them in a timely manner, thereby mitigating the damage they cause.
What Is Reconciliation?
In accounting, reconciliation refers to a transaction-checking process in which you compare two sets of records to ensure they match. In other words, when you reconcile a transaction, you check it against two sets of records. A common example of reconciliation is checking your checkbook at the end of the month against a bank statement. As you go through the transactions recorded in your checkbook, you should check the respective bank account statement to ensure they are all the same.
Why Should I Reconcile My Business’s Financial Transactions?
Reconciliation is important because it allows you to identify accounting mistakes. Even if you use extreme caution when recording your business’s financial transactions, you’re bound to make a mistake sooner or later. Rather than allowing these mistakes to go unnoticed, you can reconcile your financial transactions. Cross-checking the transactions with another set of records allows you to see exactly which ones are wrong, and if you discover any inaccurate or incorrect transactions in your business’s books, you can fix them.
How to Perform Reconciliations
If you use the Quickbooks accounting software, you can easily perform reconciliations in just a few steps. In Quickbooks Desktop, click the “Banking” menu and choose “Reconcile.” Next, click the drop-down menu for “Account” and select the account you wish to reconcile. You will then need to enter the ending date for the statement.
On the next screen, compare the opening balance listed on the statement with the amount displayed in the “Beginning Balance” field. When finished, choose the option for “Continue to open the Reconcile.”
Quickbooks will then proceed with the reconciliation process. During this process, the difference for your transactions should be zero. If an amount other than zero is displayed, the entry is wrong and, thus, you should make a note of the difference.
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