03 Oct ACCOUNT RECONCILIATIONS ARE CRITICAL
Reconciliation – did you cringe? Do you shudder at the thought? Account reconciliations don’t have to be that stressful. Although admittedly, to get to that point they are not stressful does take some prep work. Just like any job you have to have the proper tools and information. In this case a little prep work up front is truly worth its weight in gold!
I have worked with multiple companies over the years that since the thought of reconciling an account seemed so overwhelming they just didn’t do it. I am here to say that – that is not acceptable! You know it and I know it but you’re the one that has to enforce it – unless I’m mentoring within your business then I will enforce it. We all have things in life that we don’t like to do but have to suck it up and do it anyway. Reconciliations happen to be one of those things.
As with everything else within your accounting program you have to take control. You have to verify that every account that has to be reconciled on a monthly basis is being reconciled. No Excuses! And I have heard my share of excuses – some are actually quite creative and humours but still don’t cut it.
So what do I mean when I say reconciliation? Reconciling an account is verifying all of the debits and credits (everything coming in and going out) on the statement match the debits and credits entered into your accounting software package. This is done on a monthly basis. When an account is reconciled properly there is a zero for the difference balance at the end – the statement total and the total in the accounting software program are exactly the same. Let me say that again – exactly the same. You do not want to approve a reconciliation that does not have a zero difference balance.
One of the most important accounts that needs to be reconciled is your business checking account – this is absolutely critical I cannot say it enough this is absolutely critical. Every check that is written and every deposit made has to match up to the bank statement.
Another account that seems to be overlooked is the credit card account/accounts. I have seen where the statement comes in and it is automatically paid – no review no reconciliation no visibility as to where the money is being spent. Every credit card statement should be reviewed and reconciled on a monthly basis, with the owner of the business approving all charges. The lack of tracking on the owners’ part can and does promote easy embezzlement from a business.
Or Pay Later
I have seen where the checking account hasn’t ever been reconciled. The owner trusted his bookkeeper that the amount showing in the checking account in the accounting software program was correct. He proceeded to base his financial decisions off of the information he had. Assuming it was correct…assuming.
The effect of not reconciling accounts has a far reaching effect, throughout the entire business. Not reconciled or incorrectly reconciled accounts can literally make or break a company. Investing money that does not exist, overwhelming bank fees, embarrassment when checks bounce, having to find the money to cover the original check along with the bank fees and the list continues on.
If deposits were not entered Accounts Receivables will be inflated. If checks were not entered Expenses/Cost of Goods Sold will be too low. Both instances having a direct effect on both your Balance Sheet and Income Statement – every account that has an amount in will appear on one of your financials.
Now that you are looking at your company financials on a regular basis having correct numbers (as we know) is critical. Especially since you are using those statements to base your management decisions off of. If you notice that your accounts have not been reconciled we can remedy that. Applied Management Group is here to help. We can get your accounts reconciled and corrected with our mentoring and training programs.