The Importance of Numbers - How Reconciliations Catch Errors
Many small business owners skip doing bank and other reconciliations because they feel it’s a waste of time, or because their business and their personal banking are mixed together, or because they don’t fully understand what is entailed. A reconciliation is, basically, just comparing two sets of what should the same data. The most common is a bank reconciliation, where a company compares its bank statement against its accounting system and make sure they match. Why wouldn’t they match? Most likely, because someone made an error and that error might not be caught without the reconciliation.
Catching errors in your records are important for having accurate data to answer many of the questions we have already asked in the course of this series as well as having accurate numbers for government reporting that will need to be done. Sometimes an error can affect many areas of your business and the earlier it is caught, the easier it is to fix. Having an error in your books can also cost your business. If the error means you have overstated your income, you will end up paying more in various taxes to the government.
Or, perhaps it is the bank that has made a mistake. This is also important to catch as the error could affect your bank balance and possibly cost money in overdraft fees or interest if the bank thinks your balance is lower than it should be. It also prevents surprises when the bank notices the error eventually, which they will if it made your balance higher than it should be, and they correct the error without notice. If you’re believing that your bank balance is higher than it should be it may cost you in overdraft charges, NSF fees, or interest if they fix the error right before you have something automatically coming out of your bank. Many of these charges can be avoided by simply paying attention and comparing the bank’s records to your own.
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