Episode 57: The Right Way to Reconcile Your Books

  📍 Welcome to the Creative Minds Smart Money Podcast, where we turn financial confusion into creative confidence. I’m Samantha Eck, bookkeeper and fractional CFO for creative entrepreneurs. Each week I’m sharing my financial expertise and actionable strategies to help you build a thriving creative business. Plus, you’ll hear from industry experts who bring fresh perspectives on growing your business beyond the numbers. Because building a successful creative business starts with strong financial foundations. Your next chapter starts now.

 You are listening to the Creative Minds Smart Money Podcast, and today’s topic is all about reconciling. And I know reconciling sounds like something your accountant would a say in their sleep, but if your books aren’t reconciling, you could be making decisions on the wrong data. So we wanna discuss the importance of it and how we can go ahead and do it, and.

Everything in between when it comes to reconciling. So let’s get right into it today and dive into today’s topic. It’s gonna be a little bit of a shorter episode than have been in the past few weeks, but I’m very excited to really dig in and talk about it. So first of all, we wanna ask ourselves, what is reconciliation?

Because reconciliation sounds like a big word. People are like, Ooh, I don’t know what reconciliation is. It’s a hard word to spell. I know many people who still can’t spell reconciliation properly. So let’s really talk about what it is. So reconciliation is matching your books to your bank account. And you would be like, okay, Samantha, don’t I do that already when I accept transactions in QuickBooks or when I, just attach my bank account to QuickBooks, but you don’t, reconciliation is so much more than that.

And you would be surprised at the number of clients I’ve talked to who have told me that they have reconciled their books up to current and I go into their books and they haven’t been reconciled for three years. So that’s where we have a lot of. Different issues and when you see a difference in your bank balance versus what is in your accounting software, that is usually something to do with some sort or form of reconciliation error.

It makes sure that every transaction that we have in our bank account is accounted for and is accurate because the data in our bank account, yes, that’s where we have all of our financial data, but when we port it over to QuickBooks, that’s where we’re putting all of the categorizations. That’s where we’re really finally starting to use that data to make strategic decisions.

So we wanna make sure that it is accounted for and it’s accurate. And then of course reconciliation is gonna help us catch those duplicates, catch any errors, or catch fraud early. So for example, if you are someone who goes on business trips regularly and you see a Southwest Airlines charge that you don’t recognize.

It could help you catch maybe someone else is using your card to go on a business trip with Southwest Airlines. So now you can catch that and report it and hopefully get your money back from them. Okay, so now you’re like, okay, Samantha, you’ve explained what reconciliation is, but what happens when I don’t do it?

Like what is the point? First of all, if you don’t reconcile, you’re gonna have inaccurate profit reports. And what I mean by this is because a lot of the times you could be double recording income if you have a connection, let’s say with Square. Or Stripe or just some sort of payment processor where you have income coming in and sometimes QuickBooks does not match them within the bank feed.

Like sometimes they don’t. There are times they do, but I’ve seen it so many times where they don’t, or a transfer, they don’t match a transfer, they don’t match a credit card payment. Something like that where it has the amount in the bank account looking higher than what’s actually in the bank account.

That’s where we can end up actually double recording income, double recording payments over reporting our bank accounts so it. Leaves a lot of inaccuracies and we wanna make sure that those inaccuracies aren’t there. It can also lead to misleading tax estimates. So if you have a receipt software like Hubdoc or something like that and you send receipts, but you also accepted the transaction in the bank feed and didn’t match it to that receipt, you have now double recorded an expense.

So now that expense is showing up twice. Come. Your quarterly estimated taxes come tax season, you’re recording that expense twice. So now you have double the expenses. You’re paying less than taxes, but if someone were to audit you, like that’s a big red flag. It also leaves a disorganized audit trail, so that does become a really big problem if you’re ever audited or if you’re applying for loans because the people who are looking at your file don’t actually know if it’s accurate or not, because now you don’t have any sort of reconciled numbers.

A lot of people don’t. Reconciled because they just don’t think it’s so important. But again, this is exactly why. And then of course you’re gonna get some sort of decision making fatigue from second guessing your numbers, because without having them reconciled and knowing if everything is accurate in there, you’re gonna feel a little bit on shaky ground.

So you wanna make sure that you are getting those reconciled. So when and how? Do we reconcile our books? So first of all, monthly is the gold standard. Any more than that in your kind of mark micromanaging your accounts and any less than that, and you’re just missing it. So what does reconciling look like on a monthly basis?

So first of all, log into your bank account, your credit cards, your payment processors. Whatever it is that you can verify that what’s coming into your bank account can actually come into your bank account. So for example, with Square, if you go to, I believe transfers, it’ll show you all the money that they’ve sent to your account throughout the month, less fees, so you can understand how the split was, everything like that.

You should have been doing this when you’re categorizing, but now you can understand, okay, I see all of these payments are there. They’ve all come into my bank account. They’re good. Same thing with your bank. You can just go through and make sure everything is there. Then you wanna go ahead and match your transactions and your bookkeeping software, whether it is QuickBooks, zero Wave, Zoho books, all of them will allow you to reconcile your books.

It is very important that even if they say that everything matches. So QuickBooks does this, zero, does this wave, does this. Even if they say that everything matches in your books, that you go transaction by transaction and make sure they’re all there and they’re all correct and they’re all perfectly categorized.

Especially if you don’t have a bookkeeper. This is your QC moment. You wanna make sure that the quality is there and you wanna catch anything that might be a red flag. Then you wanna, flag any unknown charges or duplicates. So if you see any duplicates, maybe you. It didn’t match a transfer from an account to an account.

You wanna make sure that you look at that and say, okay, well I need to undo this one so I can match it to the correct account just to make sure that everything looks good. And then once you confirm your balances match, that’s when you know you’ve done everything right. And that’s when you can investigate all of those ones that are left over and ask yourself, okay, well why are they there?

For example, if you purchased a printer on a personal card and you just put that to your main bank account, that is going to reflect as in overage there. It shouldn’t be reflected in your main bank account, right, because you purchased it on a personal card. That should actually be a journal entry that either you or your bookkeeper does from the expense account to ownership.

Uh, distribution. So you need to make sure that those aren’t kind of being recorded in the incorrect places. And I know you might be thinking, well, that makes sense Samantha. Like, who would do that? I promise you I’ve seen it all. I’m not judging you. Like I always tell my clients, let’s not dwell on it.

Let’s fix it and make sure that it’s done properly moving forward. So that is how you reconcile. Again, you wanna do that monthly and make sure that everything looks good so that you can make sure that you’re working on accurate data. So, of course you can do this yourself. It’s totally fine to do it yourself.

There’s no reason that you can’t do it. Your spouse self, especially when you’re first starting out and you only have like five transactions a month, or you have 25 transactions a month. When you wanna bring in help, I think is when you’re starts to get really overwhelming. Because like I said, you wanna double check every single line, and this is a really good quality check thing.

You don’t just wanna go through and be like, oh yes, everything is good. All the amounts match up. Okay, I’m done reconciling. You actually wanna go line by line and make sure that everything matches and make sure that everything looks good, because occasionally as well, it’s a timing issue. So not everything that’s in a given month might actually clear during that month, if that makes sense.

It might not clear until the next statement, period. So you wanna make sure that, that you’re catching that. And I have seen credit cards and people that have credit cards that have had over 500 transactions. So that’s when it becomes really overwhelming because , a 500 transaction reconciliation can take a half hour instead of 15 minutes.

It can take three hours sometimes, especially if it’s super messy. It just depends on who you’re working with and how overwhelming that can be. 📍 So I wanna remind you that your financial data or your financial strategy is only as good as the data it’s based on and. You wanna make sure that you’re reconciling because it’s not just responsible, but it’s radical leadership.

You wanna let your numbers tell the truth so that you can write the next chapter of your business with success. As always, if you guys enjoyed this episode, please like it, comment. Share it with a friend. Get out there on social media, share this episode with people and let them know that we’re here so that they can also enjoy these episodes.

If you guys are looking for more topics that you want me to talk about, please fill out the form of the description box below. This is not for guests anymore. I will not be accepting guests as of the end of this year because I have noticed that you guys really do enjoy listening to me talk to myself.

So I’m very excited to get into more finance topics and really help you guys. Dig into those topics. I’m just so overjoyed that you guys enjoy spending time with me and that I get to really do something that I love, which is podcasting and connect with you guys on a deeper level. As always, I wish you the best week ever and we’ll see you next week.

Farewell fellow travelers.