What exactly is “Reconciling”?
Reconciling consists of taking your bank statement after the month has closed and comparing that to your bookkeeping. This step is so important, no matter what system you use there is a way to tick off each item line for line to confirm you captured it.
1. Validates Data Entry
Reconciling your accounts each month will help identify data entry errors. Such as missing transactions (transactions that appear on your bank statement, but were never entered on your books). you may find incorrectly recorded transactions (i.e. transactions that were recorded on the books to the incorrect bank account or transactions that were entered with the incorrect amount). The biggest error I find when reconciling client books is DUPLICATES!
2. Confirms Financial Statements Are Accurate
Reconciling your bank accounts each month confirms that all transactions that have been recorded on your bank statements have been entered into an accounting system. This means that your financial statements accurately reflect sales and expense activities.
3. Accurate Tax Reporting
The financial data you have on your books is what you use to prepare your annual tax return. If you have not been reconciling to your bank statements on a regular basis, it is very likely that your financial statements are not accurate. This will lead to reporting incorrect figures on your tax return.
Even if you have low transaction volumes, you should still be reconciling your accounts each month. This will help to avoid unnecessary headaches down the road.