Reconciliation is one of those painful “best practices” that many business owners avoid, ignore, forget about or put off. In the daily grind, this hardly seems critical. And without bookkeeping software to streamline the process, reconciling your Balance Statement is downright tedious and feels like a waste of time.
Reconciliation is like insurance: until there’s an issue, it feels like a waste. However, reconciliation is a risk-management measure. It assures accuracy, compliance, and retention. But what is reconciliation?
Reconciliation is simply comparing internal and external records to ensure that the information on both ends is accurate. In most cases, the bank keeps one set of records and you keep another. Then at the end of the month, you compare the two to ensure accuracy on both ends.
This is why bookkeepers want receipts, invoices, bills, and other documentation of daily transactions. Yes, it is absolutely on your bank feed – and that’s an external record. We need the internal ones or the so-called “reconciliation” is just a confirmation of the bank’s information. Translation: the bank is telling you what’s on your records. Period.
Here are three reasons why that is a bad approach to bookkeeping:
- Banks are human
Humans run banks. We all know humans make mistakes. It’s just a fact. So by doing what we bookkeepers call “bank feed accounting”, you are trusting every human who works at a bank to be 100% accurate 100% of the time. And that’s also assuming every one of them is 100% trustworthy with 100% integrity.
- Banks are robots
Even the smallest family-run bank is run with computers. Computers have errors in logic all the time. After all, they were programmed by humans (see reason #1). They are a tool, like a hammer, and can cause havoc when they aren’t running properly. Components break down, programming gets corrupted, files get lost, and the list goes on.
- Banks are businesses
Banks are running a business, not a charity. They are making money off your money. And like most businesses, as much as they may care for their clients, it’s not their problem if your cashier is swiping from the till. It’s not their job to discover fraud or let you know that your account is $2,000 short.
Ultimately, your accounts are yours. It’s no one’s job but yours to ensure their accuracy. Your bookkeeper can’t read your mind or infer from your bank what is going on in your business. Like your bank, without internal documentation, there is no way to know when someone might be stealing, or when money is not where it belongs. So do the work to get documentation to your bookkeeper as quickly as you can to ensure proper reconciliation and protect your money!!!