How Cloud-Based Accounting Simplifies Account Reconciliation
One of the 10 best things about cloud-based accounting is its ability to import transactions from online financial accounts. If you’ve already established an online relationship with your bank, you simply enter those login credentials in the accounting application. Your transactions are downloaded from the bank and appear in the account you’ve created on the accounting website for them.
Besides the fact that this process makes it possible for you to keep a close eye on your real-time balances, it also simplifies the account reconciliation process. Further, you can reconcile every few days if you want — even daily, depending on your volume — rather than engaging in that dreaded, time-intensive monthly chore.
You know from your experience reconciling accounts manually that it’s not unusual for your bank and your own records to display conflicting balances when you’re done. And then you begin the laborious process of trying to find what you didn’t record, or recorded incorrectly. Sometimes you never do. You make an adjustment and hope for a better outcome next month.
Cloud-based accounting applications don’t make this procedure error-proof, but they can simplify it – once you have a thorough understanding of how it works, which may require the assistance of your financial advisor.
Simple, But Complicated
When you get a new batch of cleared transactions from your bank, many of them will “match” data you’ve already entered on the site. For example, you send an invoice to a customer, which is recorded in your accounting app. When a payment is made on that invoice and processed by your bank, that information will be downloaded the next time you import transactions (or when the accounting site does it automatically at pre-defined intervals).
Your accounting website is smart enough to understand the relationship between the invoice that was dispatched to a specific customer and the payment that was submitted by that party. If the customer remitted the requested amount, that match will be presented to you when you reconcile, and you’ll be asked to confirm it.
Cloud-based accounting applications can “match” transactions that have been entered to corresponding entries in downloaded bank statements.
In the above screen, two potential matches have been found. If they are correct, you’d simply click OK to reconcile those transactions in your account. If your bookkeeping is precise and up-to-date, many transactions will be matched like this.
And what about the ones that don’t? What happens when the bank import includes a transaction (or several) that doesn’t match anything you’ve entered in your accounting application?
You usually have multiple options here. You could, for example, request a list of suggested entries that might match. The site would then look for entries that shared some details, like payees and transaction types. You’d be presented with a list and could select any that you recognized.
Some websites let you create rules. You define a set of conditions (payee, amount, reference, etc.), and the site handles it in the way you specify upfront. This is a complex process, and you don’t want to get it wrong. It would be best to consult with your financial advisor before attempting it.
Talk to your financial advisor before you try to create bank rules during an account reconciliation. Bank rules can save time, but can cause serious problems if done incorrectly.
If you’re still not finding a match but you realize that you failed to enter money that you spent or received, you can create a transaction on the fly that will match the bank’s entry. Note: You can’t use this method to enter an invoice, bill, or expense claim.
If you’ve fallen behind on your bookkeeping, it’s best if you catch up before you attempt an account reconciliation. It’ll take less time, and post-reconciliation work will be minimal.
There are countless reasons to use a cloud-based accounting application; the ability to access and reconcile your online bank accounts are two of them. Account reconciliation can help you spot fraud – both internal and external – early, and alert you to cash flow problems. It’s one more safeguard for your company’s hard-earned money.