If you only do one bookkeeping task every month, make it this one. A reconciliation is the step that proves your books match reality. Without it, every report you run is a best guess.

What is a reconciliation?

A reconciliation compares the balance in your books with the balance on a statement from your bank, credit card company or lender, for the same date. If the two agree, after allowing for items that have not cleared yet, the account is reconciled. If they do not, something is missing, duplicated or wrong.

You can reconcile any account that has an outside statement: checking and savings accounts, credit cards, loans, lines of credit and payment processors such as PayPal or Square.

What a reconciliation catches

  • Missing transactions. A bank feed that disconnected for a week, or a cash deposit that was never recorded.
  • Duplicates. The same payment entered by hand and also imported from the bank feed.
  • Wrong amounts. A typo that turned $1,250 into $125.
  • Bank errors and unexpected fees. Charges you did not expect and may be able to dispute.
  • Fraud. Card charges or withdrawals that nobody in the business made.

Why monthly, and not once a year?

Problems are easiest to fix while they are fresh. A missing receipt from last month is a quick question. A missing receipt from fourteen months ago is a search through old emails, if it can be found at all.

Many banks and card issuers also set time limits for disputing unauthorized or incorrect transactions, so finding a problem late can mean losing the chance to get the money back. Check your own account agreements for the exact limits.

Finally, your monthly reports are only as good as the numbers underneath them. If your accounts are not reconciled, your profit and loss could be overstated or understated without you knowing.

How to reconcile an account

  1. Get the statement for the month and note the ending balance.
  2. Open the reconcile tool in your accounting software, such as QuickBooks Online, and enter the statement date and ending balance.
  3. Tick off each transaction in your books that appears on the statement.
  4. Look into anything on the statement that is not in your books, and anything in your books that is not on the statement.
  5. When the difference is zero, finish the reconciliation and save the report.

Do not force a reconciliation to balance with an adjustment you cannot explain. That hides the problem instead of fixing it.

Signs your accounts are not being reconciled

  • Your bank balance and your books never quite agree.
  • Your accounting software shows a long list of uncleared items from months ago.
  • Your CPA asks for bank statements every year to fix your books.
  • You are not sure when the last reconciliation was done.

If any of these sound familiar, your books may need a clean-up before monthly reconciliations can start.

The bottom line

Reconciling every account each month takes a little time and saves a lot of it later. It gives you reports you can trust, a calmer tax season and an early warning when something goes wrong.

We reconcile every bank, credit card and loan account each month as part of our reconciliation service and every monthly plan.