Holy Dollar Signs, Batman! The Importance of Reconciling All Financial Accounts

Holy Toledo, Batman!

Six months before filming began for the newest Batman movie, an up-and-coming Prop House, Prop-O-Matic, won the bid to manage all of the Caped Crusader’s on-set property needs. Mike, the business owner, nearly jumped out of his socks when he heard the news that his years of hard work had paid off. What a prestigious and fun project!?

The celebration and superhero feeling lasted until shooting began. After the first day on set… KAPOW! Batman’s grapple launcher went missing and it was needed on set in 5 minutes. Thankfully, he found it a few minutes later near the desk lamp storage area.??

But later that afternoon… BLAM! His BatRadio disappeared into thin air. Or so Mike thought. It was actually hiding underneath Batman’s inventory of freshly pressed capes.

ZAP! Yet another prop went missing the next day and this time it was the Batarang. Mike was pulling his hair out trying to find it when he realized it was stuffed inside of an umbrella bucket.?

While Mike is great at sourcing the props, he needs a Prop Master on this team: someone who can organize, inventory, and ensure that all of the props are where they need to be, when they need to be there. Who knows what might get misplaced without his knowledge until it’s too late. His reputation as a business owner is on the line, and he needs to make sure all of his props are accounted for and in their proper place.??

As a business owner just like Mike, you may not have a chaotic prop room to manage, but you do have a financial balance sheet and accounts to reconcile. If they aren’t reconciled appropriately… POOF! You’ll be wondering where your money is going and will have no idea where to find it. Or worse - you won’t notice your money is hiding because it’s hiding out under the financial rug. Don’t let your money hide from you in the crevices of your financial reports because of unreconciled accounts. Let me serve as your Financial Prop Master, taking inventory of all of your financial accounts and locating those pesky dollars that may be covered in cobwebs waiting for you to move them to the appropriate spot. Set up a financial consultation with me today.?

The Importance of Reconciling Your Whole Balance Sheet

Most people know how to reconcile their bank account and monthly credit card statement. But did you know that all other accounts on your balance sheet should be reconciled as well? And because I know you are going to ask, no, there isn’t a fancy button in Quickbooks that magically reconciles these for you. Wouldn’t that be a cool gadget for your Batman utility belt?!?

Think of your Profit and Loss (P&L) statement like a movie reel, that circular metal frame that holds the thousands of pictures a camera takes that make up the entire film for a motion-picture. Your P&L is the overall story of your finances over a specific period of time, usually a year.?

Your balance sheet, then, is a single frame of the movie. Think of it as hitting pause on the movie and taking a look at the finances as of a specific point in time. This snapshot provided by your balance sheet shows how healthy your company is. Because most business owners don’t know how to properly review it, they don’t understand it. Which means it often gets ignored. If it’s ignored, it’s likely not getting reconciled. And if it’s not getting reconciled, it’s a hideout for financial villains.?

Trust me when I say that if you don’t reconcile all of your accounts, it could lead to big problems down the road, even if you aren’t experiencing issues now. Just like Mike didn’t realize that the Batarang was missing until he went looking for it, your money could be stealthily sneaking past you just like a criminal mastermind, without your knowledge, all because you aren’t reconciling your accounts.

Financial Villains That Like To Hide In Unreconciled Accounts

Here are some financial villains that may be reeking havoc on your business’s financial health if you are not reconciling your accounts:

Villain #1: 2-Faced Fraud and Embezzlement. According to the The Association of Certified Fraud Examiners 2022 Report to the Nations Global Study on Fraud and Abuse, businesses in the US lose 5% (average) of their gross revenues to fraud. Holy Dollar Signs, Batman! That’s a lot of money. If an employee has access to your General Ledger (e.g. QuickBooks) and your mailbox, they can steal client payments for themselves and post a bogus entry in an account somewhere on the balance sheet to hide it.?

For example, you decide to sell your inventory of BatRadios because they are no longer needed on set. You found a Batman fanatic who agreed to pay $1,000 for the set, and you created a receivable on your books. Your bookkeeper fetched the mail for you, and that day the fanatic’s check was in it. Your bookkeeper takes advantage of their insider access and cashes the $1000 check with a bank account they set up for a company called PropOMatic (which is similar enough to the check payee name that the bank is unlikely to notice the difference - WHAMMY!).? The bookkeeper then enters a credit memo in your books to offset the receivable amount, making it look like the payment was received. Except, instead of recording the other side as cash in your bank account, they post it to a long term asset account to cover their tracks. If you don’t know how to read the balance sheet and reconciliations of balances, you’ll never notice the discrepancy and the fraud will likely continue.?

The good news is that balance sheets have memory. Well, sort of. They never get zeroed out, which means someone who comes in and knows what a balance sheet should look like will know something is misplaced. To take action, you can hire, say, a Financial Prop Master, to show you what to look for and point out areas which don’t make sense.? With this information, you know where to look and can turn your messy financial accounts into a well categorized and healthy operation. This will allow you to kick ol’ 2-Faced Fraud to the curb. You can also set up internal controls to prevent fraud and embezzlement from happening in the first place (or for a second time).?

Villain #2: Fixed Asset Ghosts. - You could be paying property taxes on assets you don’t own anymore. If fixed assets and accumulated depreciation are not reconciled, that Batmobile that you sold 2 years ago will still show up on your tax return because it’s still listed on the balance sheet. Holy Apparition, Batman! That’s a costly punch to the gut. Make sure that you keep all of your asset records up-to-date and reconciled so that Fixed Asset Ghosts aren’t bleeding money from your account.

Villain #3: The Hidden Revenue Bandit. Let’s say you are paid $100,000 for a project up front because of your excellent customer payment policy. Accrual Basis Accounting dictates that you can’t record it as earned revenue because you haven’t done the work yet. You therefore park it on the balance sheet into a deferred revenue (or liability) account. Once you’ve done the work, you plan to move the income out of Deferred Revenue and put it on the income statement. KAPOW! You forget to move the income and it’s been sitting in deferred revenue erroneously for the last 3 months. Your income statement hasn’t been accurate all this time because you didn’t reconcile your accounts. You are actually more profitable than what your financials are showing you.?

When all accounts on the balance sheet are reconciled, you can see your bottom line (your net income) clearly because there are no financial villains hiding in a dark, unreconciled back alley.?

What Business Accounts Do I Need To Reconcile????

Your Balance Sheet is made up of many different accounts - assets, liabilities, and equity accounts. Each of these accounts should be reconciled so that you know exactly what makes up the balance in that account and you can rid yourself of any financial villains who may be stealthily hanging out under the Bat Signal.?

Other than the ones I’ve listed above, here are just a few additional types of accounts to ensure are getting reconciled:?

• Regarding business loans - does the loan balance on your balance sheet match the principal reflected on the loan statement?
• Does your Accounts Receivable (AR) aging report agree to the AR balance on your balance sheet?
• Does your Accounts Payable (AP) aging report agree to the AP balance on your balance sheet?
• Have all your prepaid expenses been properly amortized?

I’d love to help you find answers to these questions and uncover any hiding financial villains. As your Financial Prop Master, I’ll help you take inventory of all of your accounts, ensure things are placed where they need to be placed, and recorded correctly. Contact me today to set up a financial consultation.