Accounts Reconciliation
Definition
Accounts reconciliation is the process of comparing two sets of financial records, typically internal books against external statements like bank records or payment processor reports, to ensure they match and to identify and resolve any discrepancies. Regular reconciliation prevents errors from compounding.
Overview
Accounts reconciliation verifies that your internal financial records match external sources of truth. The most common is bank reconciliation: comparing your accounting system's cash balance against your actual bank statement. Other common reconciliations include Stripe payouts vs. recorded revenue, payroll system records vs. expense entries, and credit card statements vs. booked expenses.
For startups using payment processors like Stripe, reconciliation is especially important because of timing differences between when customers pay, when Stripe records the transaction, and when funds arrive in the bank account. Payment processor fees, refunds, and currency conversions add further complexity.
Regular reconciliation, ideally monthly, but weekly for high-transaction-volume businesses, catches errors early. Common discrepancies include duplicate entries, missed transactions, incorrect categorization, and timing differences. The longer reconciliation is neglected, the harder discrepancies become to track down. Clean, reconciled books are also a prerequisite for smooth fundraising due diligence and tax preparation.
Example
Monthly bank reconciliation reveals a $2,300 discrepancy between QuickBooks and the bank statement. Investigation finds a vendor refund that was deposited but never recorded, plus a duplicate expense entry.
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