Reconciliation - Cost Book keeping, Cost Management | Cost Management - B Com PDF Download

Account reconciliation is the process of comparing transactions you have recorded for a financial account against a monthly statement from a bank, credit card or other financial institution to ensure that your account records are identical.

If you're not using personal finance software, the record of your transactions would likely be in a paper register that you keep updated, like a check register.

If you're using personal finance software, your transaction records are in the form of your account registers.

Why Should You Reconcile Accounts?

Taking the time to compare transactions and balances is worthwhile because it will help avoid overdrafts on cash accounts or going over your limit on credit cards. This will save you from having to pay some very high over-limit and overdraft fees.

Reconciling accounts and comparing transactions also helps you discover errors in transactions, duplicate charges and fraudulent activity. Credit card companies won't hold you responsible for fraudulent charges, but people who skip reconciling or at least looking over each account statement can lose a lot of money over time when small unauthorized charges are made frequently by criminals.

Most banks will forgive amounts drawn on your account if someone steals your checks and you report the activity quickly, but this is not always the case with ATM cards.

Reconciling your accounts every month is the best way to avoid these expenses.

How to Reconcile Your Accounts

When you use personal finance software to reconcile accounts, the software does all the work for you, saving you a lot of time. Most online personal finance software reconciles accounts.

While using software to reconcile accounts is recommended, it's a good idea to understand the process:

1. Compare your account register to your bank or other financial statement and check off each payment and deposit on your register when it matches the statement. If you're using the reconciliation feature in financial software, you just use your mouse to check off the items that clear.
2. Identify checks, ATM transactions and charges that you have on record but are not listed on the checking or credit card account statement. Subtract these items from the statement balance (financial software does this step for you). Charges to watch for include those for check printing, ATM services charges, as well as insufficient funds (NSF), overdraft or over-the-limit fees.
3. Find deposits and account credits that haven't been recorded by the financial institution yet and add these to the statement balance (financial software handles this step for you). If you have an interest-bearing account and you are reconciling a few weeks after the statement date, you may need to add in interest as well.
4. You shouldn't find bank errors often, but if any errors were made, the amount needs to added or subtracted from your balance. Contact the bank immediately to report any errors.
5. The new statement balance should now equal the balance in your records. If it doesn't, you'll need to comb through the transactions to determine what needs to be adjusted to bring the records into balance.