The Art of the “Double Check”
The Art of the "Double Check": Why Reconciling Your Accounts Is Non-Negotiable
You've heard the advice a million times: "Stay on top of your books!" But what does that really mean? For many business owners, it's just about entering income and expenses. Easy, right? Well, there's a crucial step that often gets missed, and it's one of the simplest habits you can adopt to save yourself a ton of headaches: reconciling your accounts. Think of it like checking your grocery list against your receipt after a shopping trip. Did you get everything you paid for? Did you pay for anything you didn't get? Reconciliation is the financial equivalent of that careful double-check. What Exactly Is Reconciliation? In a nutshell, reconciliation is the process of comparing your internal financial records (the transactions you've logged in your accounting software, spreadsheet, etc.) with the official statement from your bank or credit card company. The goal? To make sure that every single transaction on your statement matches up perfectly with a transaction in your books. No more, no less.
The Big "Why"! 3 Reasons You Shouldn’t Skip This Step
So, why bother with this seemingly tedious task every month?
You'll Catch Mistakes and Errors. Let's face it, we're human. You might have accidentally entered $150 instead of $15. Or maybe a vendor charged you twice by mistake. Reconciliation is your safety net. It's the moment you'll spot those typos, duplicate charges, and transactions you forgot to log. Without it, those little errors build up and completely throw off your financial picture.
You'll Be the First to Spot Fraud. Unfortunately, fraudulent charges are a real risk. By going line by line through your bank statement, you'll immediately notice any unauthorized charges. Catching a small, fraudulent charge early can prevent a much larger one down the road. It's an easy way to stay on top of your financial security.
Your Financial Reports Will Actually Be Right. This is the big one. Your Income Statement and Balance Sheet are only as good as the data you put into them. If your books are full of errors and omissions because you never double-checked them against your bank, then you can't trust the numbers. This leads to making poor decisions based on flawed information—like thinking you have more money than you do, or underestimating your true expenses.
What Happens When You Don’t Reconcile? Neglecting this simple habit can lead to some serious drama:
Financial Surprises: You might get an overdraft fee because your bank balance was lower than you thought.
Audit Anxiety: Nothing says "red flag" to an auditor like messy, unreconciled books. They'll want to see that your internal records match your official statements.
A Massive Headache: Trying to reconcile a whole year's worth of transactions at once is a nightmare. Doing it monthly takes 15-30 minutes; doing it all at once can take days.
Not Just Your Bank and Credit Cards
While those two are the most common accounts, good reconciliation practices extend to almost every account on your Balance Sheet. To get a truly accurate picture of your business's health, you should also be regularly reconciling:
Loan and Line of Credit Accounts: Are the payments you've recorded matching the loan statement? You need to make sure the principal and interest are being applied correctly and that your outstanding balance is accurate.
Accounts Receivable (A/R): This is the money owed to you by customers. You should reconcile your A/R records to make sure every invoice you've sent out has either been paid or is still outstanding. This helps you follow up on overdue payments and prevents income from falling through the cracks.
Accounts Payable (A/P): On the flip side, this is the money you owe to your suppliers and vendors. Reconciling your A/P ensures you're not paying bills twice and that your records match what your vendors are saying you owe.
Inventory Accounts: If your business sells products, you need to regularly reconcile your inventory records with a physical count of your stock. This helps you identify shrinkage (theft or damage), track what's selling, and ensure the value of your inventory on your Balance Sheet is correct.
Payroll Liabilities: When you run payroll, you withhold taxes and other deductions from your employees' paychecks. You should reconcile these liability accounts to make sure the money you've set aside for the government and other agencies matches what you actually owe them.
By adding these accounts to your reconciliation routine, you'll be building a rock-solid foundation for your business's financial records. It’s the difference between having a good grasp of your finances and having total confidence in them.
A Simple Guide to Reconciling (It's Easy!)
Pick a Date: Choose a specific period, like the last day of the month.
Gather Your Tools: Grab your bank or credit card statement and reports, then open up your bookkeeping software (or spreadsheet).
Go Line by Line: Compare every single transaction on your statement to your records. Check them off as you go.
Investigate Discrepancies: If you find a transaction in your books that isn't on the statement, or vice versa, find out why. It could be a timing issue (a check that hasn't cleared yet) or an error.
Achieve Balance: Once everything matches and your internal ending balance is the same as your statement's ending balance, you're done!
