Reconciled means your books have been checked against your bank and credit card statements and they match to the penny, with every difference explained.
What reconciling is
Every month your bank sends a statement. It shows a starting balance, every deposit and payment, and an ending balance. Your books have their own version of that same account.
Reconciling means putting the two side by side and making them agree. Every transaction in the books has to match one on the statement, and the ending balance in the books has to equal the ending balance on the statement. When something doesn't match, the bookkeeper finds out why and fixes it.
That's done for every account the practice has. Checking, savings, every credit card, and any loan.
Why categorizing isn't the same thing
A lot of owners I talk to assume that if every transaction has a category, the books are done. They aren't.
Categorizing answers what each transaction was for. Reconciling answers whether the list of transactions is complete and correct. Your bank feed, the automatic import of transactions into your books, can skip a transaction, pull one in twice, or bring in a pending charge that later changed. Categorizing every line won't catch any of that. Reconciling to the statement will.
Here's a made-up example. Say your books show $41,200 in checking at the end of the month, and the bank statement says $40,450. That's a $750 gap. Maybe a $750 deposit got imported twice. Maybe a member payment was recorded and then failed. Until someone finds it, every number built on that account is off by $750.
Why every other number sits on top of it
Your P&L, your Balance Sheet, your revenue per member, your cash runway. All of them come from the same transactions. If those transactions aren't complete and correct, every one of those numbers is a guess.
That's why I treat reconciliation as the base of the books. A nice-looking report built on unreconciled accounts can be wrong in ways you wouldn't spot from the report itself. Duplicate expenses make profit look lower. A missing deposit makes revenue look lower. A transfer between your own accounts recorded as income makes revenue look higher than it is.
It matters for your CPA too. When the books are reconciled every month, your CPA can file from them without first spending hours figuring out what's real.
How to tell if your books are reconciled
You don't have to do the reconciling yourself. You should be able to confirm it's happening. Here's what I'd check this week.
- Ask your bookkeeper which accounts were reconciled last month and through what date.
- Ask for the reconciliation report on your main checking account. It should show the statement balance, the book balance, and any items that haven't cleared yet.
- Look at the cash balance on your Balance Sheet for the last day of the month. It should match the bank statement for that day, once any uncleared items are accounted for.
- Check that every credit card is included, not only checking.
- Ask what's sitting in uncategorized or suspense accounts, and how old it is.
If the answer is that the accounts are reconciled through a date six months ago, or nobody's sure, the numbers you've been looking at aren't reliable yet. That's fixable. It's better to know now.
A note on uncleared items
Reconciled can still leave a few items open. A check you wrote on the 29th might not clear the bank until the 3rd of the next month. That's normal. On a reconciliation report it shows as an uncleared item, and it should clear the following month. What you don't want is a list of uncleared items that are months old and don't go away. Those usually point to a mistake nobody has fixed.
If you're on Hint, there's a related wrinkle. Deposits arrive net of fees, refunds and failed payments, so they won't match your membership report line for line. This post explains why your Hint report doesn't match your bank.
Common questions
How often should my books be reconciled?
Every month, for every bank and card account. Waiting a quarter or a year makes errors harder to find and leaves you making decisions on numbers nobody has checked.
Can my software reconcile automatically?
Software can suggest matches, which speeds things up. Someone still has to compare the books to the actual statement, explain every difference and confirm the ending balances agree.
Why does my bookkeeper need statements if the bank feed is connected?
The statement is the official record of what happened in the account. The feed is a copy, and copies can miss or duplicate transactions.
Want books you can trust every month?
We reconcile every bank and card account as part of the monthly close and send your P&L and Balance Sheet by the 15th. If you want numbers built on a solid base, apply to work with us.