How to do account reconciliations

1. How to do account reconciliations Do you ever feel like your bookkeeping is a little bit off? Like, maybe you're not sure if everything balances out in the end? If that's the case, you need to start doing account reconciliations. Here's how to do them in just a few simple steps. If you're not too familiar with the term, "account reconciliation" just means checking to make sure all of your accounts balance out - that is, that the total amount of money going into and out of each account is equal. This may sound like a tedious task, but it's actually pretty straightforward and can help ensure that your books are always in order. In this post, we'll teach you how to do account reconciliations using a few simple examples. Why you need to do them

2. It doesn't matter how small or large your business is, you always need to be on top of your bookkeeping. Account reconciliations are a great way to ensure that everything balances out and also helps weed out any mistakes in your accounts. So, even if it feels like extra work, account reconciliations are going to come in handy later when you have an important decision to make with regards to your accounting - I've personally been able to save my business thousands of dollars because I caught a mistake during account reconciliations! How often should you do them? Ideally, you should reconcile all of your accounts monthly. However, for some businesses, this may not be possible. If that's the case, aim for at least doing reconciliations yearly on your checking account balance and any accounts where your income fluctuates significantly (such as credit cards or Amazon Seller Central). Three easy steps to reconcile an account Step 1: Make sure everything is up to date . Before you do anything else, go over all of your accounts one more time just to make sure nothing has changed since you last reconciled them. This may sound unnecessary, but it really does save a lot of time later on when you're trying to find mistakes in your bookkeeping. Step 2: Find two transactions that should be "on the same page" . Remember, the goal of account reconciliations is simply comparing balances - so, look for two transactions that should balance out to each other. For example, let's say your checking account has a balance of $5,500 at the beginning of the month. During this time, you write checks totaling $1,000 and receive payments of $700 on new invoices you created during the month. The last transaction in your checking account is another check written by your company for $400 - so, all together, these transactions total $5,100 ($5,500 + $1,000 - $400). It doesn't matter if one or more of these payments come in later on during the month; just make sure that they're all up to date before moving onto step 3. Step 3: Compare what you've found with your accounts . Now that you've got two transactions that should be "on the same page", compare what you've found with your accounts. This may seem like a lot of trial and error, but it really isn't - just keep trying until you find something that doesn't match up. For the example given above, your checking account balance is $5,500 instead of $5,100. Why? Maybe you accidentally entered an additional check for $400 into your register at some point or maybe there was a transaction in your bank feed that didn't import correctly (for instance, if the merchant category code (MCC) isn't quite right for one of your expenses). Either way - it's easy to fix this problem. The next step is to make sure your other accounts balance out. For example, let's say you have an account with a balance of $4,000 at the beginning of August and also receive payments totaling $6,500 on new invoices created during the month.

3. Additionally, you write a check from this account at the end of the month for $1,700. This means that all together, these transactions total $11,200 ($4,000 + 6500 - 1700). It doesn't matter how much money is in your different accounts when you begin reconciliations; just make sure that they're all up to date before moving onto the next step. Step 4: Compare what you've found with your accounts . Now that you've got two transactions that should be "on the same page", compare what you've found with your accounts. In this example, your checking account balance is $11,200 instead of $5,100 which means there's an issue somewhere; however, it's unlikely to be in your other accounts (they're likely where the mistake is). At this point, make sure all the numbers are correct and double check them if necessary before moving on to finding more mistakes! The Bottom Line Account reconciliation software can seem like a lot of work - but remember: every time you do them, it really will save you stress later on because you know your bookkeeping is up to date! Plus, if nothing else works out for you, at least you'll have a thorough understanding of your business' finances. And that's it! If you'd like to know more about double entry bookkeeping in general, be sure to check out my post on the subject here .