Mastering Reconciliation for Accurate Accounting and Informed Decisions
So, reconciliation is really – I guess it’s a word that’s about comparing one thing to another thing and making sure that they agree. The best-known reconciliation in accounting is the bank reconciliation. Now the bank reconciliation, once upon a time, was a pretty straightforward process. You got your bank statement in the mail, eventually, and you’ve compared it, to your hand-written books where you’ve recorded what you’ve been doing, what your cheques have been, and so on.
Then you got your bank statement out and you worked your way through the transactions to make sure they were right. And as you went along, you might discover that this cheque was presented for $110, but you wrote it in your book as $100. So, you get the rubber out, fix the book. That’s how it used to be.
And you kept going until you got to the bottom of what you’ve been recording. And then you had your bank balance, compared to the bank balance in your records. Now back then, cheques were in the mail. So often there were some outstanding cheques, maybe some outstanding deposits because when you took the money to the bank, believe it or not, with your cheques and everything else – this is for the young people – it could be three or four days before it turned up on your bank statement.
Now, today it’s very different. Today, we have immediate access to the information going through our bank, and we don’t even write up that handwritten stuff anymore. We rely on the information coming in from the bank and our software helps us to allocate all of those things. And the bank rec. should be…. should be very straight forward. But it’s not. You need to be careful. The reconciliation should not have any outstanding deposits or outstanding payments, because it’s pretty much straight up and down happening on the day. So, we reconcile our bank statement, we reconcile our bank in whatever software that we have, to make sure that the balance per the bank is the same as the balance in our software.
If there are any excess transactions, we need to remove them. They can arise in a number of different ways, depending on how you are preparing your accounting information, there’s all sorts of ways they can arise.
But for today, be aware that looking at your bank reconciliation there should be no outstandings. Unless some of those some of the softwares will show future transactions that are dated after the day of the bank statement. And that’s okay. I hope that hasn’t confused you too much.
Other reconciliations that are really important are everything on your balance sheet – should be able to be reconciled to something. We should really know what those balances are and where they’ve come from. But that’s a topic for another day. So, thanks for joining me here on Better Business Insights.
If we can help with anything, reach out, and I hope this idea of reconciliation is more clear to you now. Have a fantastic day.
Reconciliation is an essential tool in accounting. We should regularly check our records to the source to be sure our financial statements are correct. Unless they are correct we are deprived of making appropriate decisions.
