You know “garbage in, garbage out”? The same holds true when you’re running a small business: you can’t make good decisions if you’re using the wrong data, particularly wrong financial and accounting data.
This leads us to bank reconciliation. Bank reconciliation is the process of ensuring the information in your business accounting software matches exactly with the information in your bank account statement. In other words, all money in and all money out should be identical in both.
Back in the day, we called this “balancing your checkbook” because when you hand-wrote checks and copied that information into your checkbook’s ledger, it was easy to forget something or accidentally transpose a couple of numbers. So at the end of each month, when your bank statement arrived, you would (hopefully) go back and check to see that your numbers were the same as the bank’s. If not, you could find yourself thinking you had a whole lot more money than you really did.
The same holds true for small business bookkeeping: you should check monthly to ensure your bank account and your accounting match up. Otherwise, you could accidentally issue a check without the available funds to cover it. Or, worse, you may not feel 100% confident that you can let go of an annoying client and still have enough income to cover computer paper.
Why Ledgers Get out of Sync With Banks
While accounting software is always improving on its accuracy, discrepancies can still appear. The reasons for this may include:
- Manually entered transactions creating duplicates
- Accidentally deleting valid transactions
- Reversed or refunded transactions not properly recorded
- Credit card processing fees not lining up with the right invoices or in the right account
- Bank feed automations missing entries when importing data
- The weather in Seattle in October
For example, let’s say Sandy records the sale of a teapot in her digital ledger for $25, and the $25 is automatically added to her business bank account. However, Danny, the co-owner, didn’t know Sandy had already recorded the sale and records it a second time in the digital ledger himself. Now the accounting software reads +$50, but the actual bank account only has +$25.
These types of accounting errors are common enough that regularly cleaning up the books is a good habit to practice. The more often you do this—preferably at least once at the end of each month—the less time you’ll have to spend hunting down these discrepancies. Trust us, the small inconvenience of cleaning your data before a business mistake is much better than the alternative.
Manually, this important cleanup can take you several hours, depending on how large your ledger is—which is why so many small business owners delay this chore. Finding that duplicated $25 income entry from among a list of hundreds of transactions could take you hours, and give you 5 new gray hairs.
BTW, if you’re a Sunrise user, the app can handle the cleanup process for you with the new Bank Feed Correction (BFC) tool. With the BFC tool in Sunrise, you can find and eliminate all duplicates in a matter of seconds and add back missing transactions. Read on to see how it works and what you’ll need to do.
Reconcile in Seconds With Sunrise’s Bank Feed Correction Tool
You’ve seen the “Account balance” and “Running balance” numbers at the top of your Sunrise screen, right? When your bank account is linked, these two numbers will update. Your goal is to get them to match. If they don’t match, Sunrise will prompt you to reconcile.
To do this manually, you can also access the Bank Feed Correction Tool (BFC) from the “More” dropdown menu in the upper right corner.
You will be prompted to upload a CSV of your bank statement. (If you’re not sure where to find the CSV, just ask your bank.) Once uploaded to Sunrise, follow the prompts to map the column headers and confirm the date range of the bank statement. The Bank Feed Correction tool will detect and then display proposed changes for you to approve.
Next, the BFC tool will offer to fix these errors by importing any missing transactions and removing duplicate transactions. Want to manually skip a specific correction? Just uncheck its box.
Sunrise Then Imports the Missing Transactions with your Approval
And that’s it. You’ve successfully cleaned your books and reconciled your digital ledger to what’s actually reflected on your bank statement. Clean data, clean business.
For more information on this new feature and other advantages that Sunrise has to offer your small business, click here.