Why should I reconcile my checking, credit card, and savings accounts?

Reconciliation:

Reconciliation is an accounting process. It ensures accuracy and validity of your financial information.

It is done by verifying that the actual money spent or earned matches the money leaving or entering an account and there are no errors at the end of a particular time period. The time period can be monthly, quarterly, or whatever is established. This is a way to identify and explain the differences between the entries in your accounting system and the corresponding transactions listed on your bank or credit card statement.

Reconciliation can seem like a mundane process to go through each month but there is a purpose.  It’s probably the single easiest way to do the following:

Catch errors

• Misread receipts, transposed numbers, forgotten entries, duplication Not catching these errors can lead to cash shortfalls and overdrafts
• The bank can make mistakes. It is rare but it can happen.

Avoid surprises

• Checks that have not cleared can be investigated as to the cause; a payment may have gotten lost. A transfer may have occurred. Catch this before late fees set in.

Save money

• Cancel subscriptions you forgot but meant to cancel
• Discover bank and credit card fees you may not have realized were changed
• Recurring fees that start up after trial period has expired
• Depending on the frequency of reconciliation, it could be months before these are discovered

Verify cash flow

• You are aware of exact cash flow position
• Lenders and investors could inspect bank reconciliation reports to assess financial stability

Prevent fraud

• Learn if credit card or checking account has been comprised
• Checks could be stolen

Accurate Tax Reporting

• Reconciling checking and credit card accounts is essential for you to generate a correct tax return.

In general, reconciling bank statements can help you identify any unusual transactions that might be caused by fraud or accounting errors. This process can be done formally or informally.  This is true for both businesses and individuals. You should verify every transaction individually, making sure the amounts match perfectly, and, if not, making note of any differences that need further investigation