According to Wikipedia reconciling means “In accounting, reconciliation refers to the process of ensuring that two sets of records (usually the balances of two accounts) are in agreement. Reconciliation is used to ensure that the money leaving an account matches the actual money spent this is done by making sure the balances match at the end of a particular accounting period”.
In more clear terms basically reconciling your accounts means simply making sure the amount in your checkbook agrees to what the bank states is in your account. There are so many reasons why reconciling your bank account each month is important, however so many business owners choose not to take this step.
Reconciling your bank statement each month ensures that all transactions are accounted for. It keeps reports accurate, locates mistakes quickly whether they are yours, the banks, or maybe the customer and gives you a bird’s eye view of your money each month.
You have a set time each month to sit down and look at your income, and expense habits. Reconciling your bank statement requires you look at each transaction in regards to your business. This allows you to see where your money is coming from as well as where it might be going. This is a good time to take a look at where you might want to make some changes in your spending habits. Especially, for those business owners who are not making a habit of looking at their books on a weekly basis.
Reconciling your accounts each month makes sure that everything is balanced. Many people, in their business as well as their personal accounts really think that it is no big deal if your reconciliation is off by a few dollars each month.
What if your discrepancy is because the bank made an error? Or maybe you forgot to record a customer payment, you call the customer and now they are angry because that payment cleared months ago, what do you do then? How do you handle that situation?
Every account you reconcile if done correctly, as long as all transactions are entered correctly will reconcile to zero. If it doesn’t balance then there is an issue, spending the time, and energy to figure it out can save you money, time, and moments that could potentially cost you a customer. It is a good habit to get into, and if you do it each month it doesn’t take much time at all.