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What Is Reconciliation? What You Need to Know for Small Business Accounting

Whether you own a large corporation or a local mom-and-pop shop, properly reconciling bank statements each month is an important (yet sometimes forgotten) task.

Before we get into the reasons why you should reconcile your bank accounts every month, we thought we’d provide some guidance as to what reconciliation actually is. According to Investopedia, reconciliation is:

“An accounting process used to compare two sets of records to ensure the figures are in agreement and are accurate.”

As a small business owner, you’ll want to reconcile each bank account associated with the business each month. This includes your checking account(s), your saving(s) accounts, your credit card accounts, and even your PayPal accounts. There are a few reasons why consistent bank reconciliation is important and we’ve listed those reasons below.

Reconciliation Helps with Tracking Company Performance

To ensure business growth, you will need to see what goes out and what comes in each month. By reconciling your accounts on a monthly basis, you are able to do just that. Viewing each transaction, whether a debit or credit, allows you to spot opportunities. For example, when you (or your accountant) are reconciling your accounts each month, you may spot an expense that was setup automatically and is no longer needed. By catching this during your regular bookkeeping, you can eliminate the cost and save your business money.

Taxes

The financial data found in your accounting software is what is used to prepare your tax returns. If you’ve neglected reconciling your bank accounts, your financial data will most likely not be accurate. As accountants, we know how important accurate financial data is for taxes. Inaccurate financial data most certainly means an inaccurate tax return, which no one has time to deal with.

Ensuring Financial Data Accuracy

With companies moving everything online, you might think your financial data is safe from error. If everything is automated, what could possibly go wrong? You would be surprised to learn just how many errors you can catch when you reconcile your bank statements properly each month.

A great example of this is making a deposit at your local bank. You’ve filled out the deposit slip, provided it to the bank teller, and everything should be all set at that point. For the most part, there are no issues. However, what if that bank teller inputted an incorrect number? Unless you spot it right away, you will need to rely on your ongoing reconciliation process to catch this.

Taxes

The financial data found in your accounting software is what is used to prepare your tax returns. If you’ve neglected reconciling your bank accounts, your financial data will most likely not be accurate. As accountants, we know how important accurate financial data is for taxes. Inaccurate financial data most certainly means an inaccurate tax return, which no one has time to deal with.

Need Help with Small Business Accounting?

Anxious about your business’s financial future? Are you struggling with trusting an employee to handle your monthly reconciliation? If so, the experts at Team Holly are here to help!

At Team Holly, we are revolutionizing the way businesses do accounting. We offer a variety of small business accounting services, including specific plans based on your needs. Our plans offer something for every business; from monthly reconciliation/bookkeeping to a completely outsourced CFO, we’ve got you covered.

To learn more about our accounting services, click here or contact us today.

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