What should you do if you are unable to reconcile your accounting software against your bank statements? This is far from an ideal position to be in. But don’t panic – it might have an easy fix.
What Is Reconciling Your Statements?
Reconciling your accounting software against your bank statements essentially means going through your business transactions, checking them off, and making sure they are all represented in your bank statements, and that all the transactions on your bank statements are recorded in your accounting software. This ensures there aren’t any missing transactions or any additional transactions that shouldn’t be there.
If you can’t do that, and your accounting software doesn’t match up, there could be something seriously wrong. On the brighter side, though, it could also mean that there are just a couple of transactions missing – which is fixable. What’s important is finding them.
How Often Should You Reconcile Your Accounts?
Ideally, you should be working with a really good accountant who is capable of reconciling the software against the statements every single month. We frequently work with founders who are doing their own accounting, and they’re simply clicking and adding or categorizing (which is the easy part of accounting) to their software – like Quickbooks.
However, Quickbooks allows you to create journal entries or add any kind of transactions you like, which is useful but can also lead to mistakes. When you reconcile it against your bank statements, that’s when you can see if something is off.
At Kruze, we’ve developed a method of automatically adding and categorizing statements into Quickbooks that we call Kruze Keeper. It saves a lot of time! But this is where reconciliation is really important. It ensures we don’t miss anything that could be off.
This could include things like:
- Made-up numbers
- Potential fraudulent activity
- Cooking the books
It’s important that you reconcile your bank statements with your accounting software every month in order to spot or prevent these potential issues!
Doctoring PDFs and Accounting Fraud
One of the most common ways in which accounting fraud is committed (at least in the startup world) is by manipulating and doctoring PDFs. The way this usually plays out is that someone will use a PDF editing tool in order to make a document look like a bank statement or financial record when it’s not. This way the books can be fraudulently altered and transactions hidden.
In order to combat this, here at Kruze, we insist on being able to pull bank statements directly from our client’s software system. We’ve seen situations where PDFs have been manipulated.
Advantages Of Reconciling Your Banking Statements
Despite the potential challenges, reconciling your bank statements against your financial statements is a critical step in making sure your financial records are accurate and reliable. It can prevent costly mistakes, enhance financial control, and provide peace of mind.
Pros
- Error detection. Reconciliation helps identify errors or discrepancies, such as double entries, omissions, or incorrect amounts in your financial statements, ensuring accuracy in your records.
- Fraud prevention. Regular reconciliation can detect unauthorized transactions or fraud early, allowing you to take corrective action before significant damage occurs.
- Accurate financial reporting. By making sure that all transactions are correctly recorded, reconciliation leads to more accurate financial statements, which are essential for decision-making, tax reporting, and financial analysis.
- Cash flow management. Reconciliation helps you keep track of your actual cash balance, which is crucial for managing cash flow, avoiding overdrafts, and ensuring that you have enough funds to cover upcoming expenses.
- Better financial control. Reconciliation provides a clear picture of your financial position, helping you maintain control over your finances and make informed business decisions.
Cons
While there can be some issues with reconciling bank statements, the advantages far outweigh any disadvantages. And if resources are an issue, using an outsourced accounting firm like Kruze Consulting can help.
- Time-consuming process. Reconciling bank statements with financial statements can be time-consuming, especially for businesses with a high volume of transactions, leading to increased administrative burden.
- Complexity. The reconciliation process can be complex, particularly if there are multiple accounts, numerous transactions, or if discrepancies arise that require investigation and correction.
- Dependence on bank data. Reconciliation is dependent on the accuracy and timeliness of bank-provided data. Any delays or errors in receiving bank statements can hinder the reconciliation process.
Check Your Statements Every Month
So when you’re reconciling your bank statements, remember to make sure:
- Your accountant is reconciling the books every month
- All transactions are in QuickBooks
- Nothing is missed or left out
And investigate any anomalies immediately
If you have any other questions on reconciling accounting software, valuations, startup accounting, why you should reconcile your cap table, or taxes, please contact us. You can also follow our YouTube channel and our blog for information about accounting, finance, HR, and taxes for startups!
