Now that we know how to bookkeep, it’s time to talk about reconciliation.  The two tasks go hand in hand, and bookkeeping without reconciliation is almost pointless.  Reconciliation is the process of confirming that all the transactions that you think occurred in your business, actually occurred, no more and no less.  Is this tedious?  YES.  Is this necessary?  Also YES.

Starting with the basics, how do you reconcile?

The steps to reconciliation are:

  1. Match every transaction in your accounting software to your bank and credit card statements
  2. Review every transaction that wasn’t matched, and determine whether the charge was legitimate or not
  3. Go back into the ledger and enter the transactions you have determined to be legitimate
  4. Review why there were missing transactions and figure out how could this be avoided in the future
  5. Continue reconciling until there are zero differences between your accounting software ledger and your statement balance
  6. Confirm that the total sales for the month match what is reported in your practice management software

WHY do you need to reconcile?

1. To make sure what is deposited into your account matches the payments reported by your practice management software

In our post on Day Sheets, we talked about the daily reconciliations of payments made to your practice.  If you’re not the one to deposit those payments, then monthly reconciliations is all the more important.  Even if you do make the deposits, you still need to make sure they were properly deposited into your account.  A few years ago, I dropped off an envelope full of checks to be deposited into my bank’s night drop box.  2 weeks later, when I was reconciling, I discovered that the checks were missing from my account!  It turns out that my envelope got stuck somehow, and when I notified the bank branch, they were able to pull it out of the drop box.  Without reconciling, who knew how long those checks would have been stuck for?

2. To make sure you catch any charges that deviate from from the expected amount

Because our telephone bill is the same every month, I have it as a “recurring transaction”, meaning my accounting software automatically enters the expense into my ledger on the 1st of every month.  For that reason, I don’t typically review the statements from the telephone company and the bill is on autopay.  Last year, I somehow missed the telephone company’s contract renewal notification and my telephone bill doubled!  Thanks to my monthly reconciliation, I caught the discrepancy and was able to quickly get it under control.

3. To have an accurate financial picture of your business

If you’re not going to reconcile your accounts, then you have no idea how accurate your numbers are for your income, expenses, and net profit.  These numbers are not arbitrary ideas, they are measures of the financial health of your business.  You make financial decisions based on this data, so why would you want anything other than accurate information?

4. To catch any fraudulent charges made to your account

Credit card companies are often pretty good at catching fraudulent charges, but sometimes they still sneak through.  These charges are usually easy enough to dispute.  Alternatively, someone in your company could be charging personal (illegitimate) expenses to your credit card, or buying themself gift cards from retailers you commonly buy from such as Amazon.  These are a lot harder to catch and takes a lot of diligence when it comes to checking receipts.  Just because you recognize the retailer/vendor, don’t assume that the charge is legitimate.

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