Contrary to what account software companies lead you to believe, bookkeeping isn’t is simple as it’s made out to be.  Unless you have in depth knowledge of the software you’re using and basic accounting principals, it’s easy to get tripped up with bookkeeping.

Throughout my years working with startups and small businesses, I’ve seen countless instances of the DIY founder or small business owner whose books are in complete disarray at year end.  The one consistency with these clients is that bank reconciliations were not performed, or were performed incorrectly.  As a Certified Public Accountant who has seen the good, the bad and the downright ugly when it comes to bookkeeping, it is my hope that every founder and small business owner’s new years resolution is to perform bank reconciliations at the end of each month.  Doing so should alleviate the headaches and extra fees from your tax preparer at year end.  Lets examine further what bank reconciliations are, and why they are so important to you as a small business owner.

What are Bank Reconciliations?

Simply put, a bank reconciliation is the process of matching the transactions in your accounting records with the corresponding transactions in your bank account.  For example, if your business spends $100 on it’s debit card to purchase office supplies, a bank reconciliation will make sure that the cash transaction from your bank account is matched to the expense transaction in your accounting records.  After performing bank reconciliations, your balance should be zero, indicating that all cash transactions are accounted for in your financial records.  If your balance is not zero, something is most likely wrong.  Don’t simply brush the difference under the rug and forget about it, because, among other things, it can have a negative impact on the amount of taxes you pay!

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Why do Bank Reconciliations Matter?

Making sure your bank and credit card accounts are reconciled to the exact penny is crucial to making sure you have accurate financial reporting, as any double counted transactions, or missing transactions can throw off your numbers.  One of the most common mistakes performing bank reconciliations will catch is the double counting of invoices or double counting of expenses.  As alluded to earlier, it’s easy for a rookie or DIY bookkeeper to accidentally forget to match a deposit to its corresponding invoice, or forget to match a check to the corresponding bill before posting it (this is probably the number one mistake I see in clients’ books).  When this happens, your Income Statement can be adversely impacted.  However, if you perform bank reconciliations, you should be able to identify mistakes and correct them before they snowball into a much larger and more expensive problem.
If you make one resolution for yourself and your business this year, make your CPA happy and make it a priority to complete monthly reconciliations of all bank accounts.  If your business is growing too rapidly (a good problem to have!) and you don’t have time to do it yourself, reach out to a professional who can help outsource your accounting and bookkeeping function altogether.

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