Welcome to professrsavings.com, we teach finance basics.
Today we will teach you reconciliation in two minutes.
The reason why you should learn this is because this will help you run a business better.
First, this term falls into the accounting category.
In simple terms, it is accounting process in which two sets of records are compared to make sure that the figures are in agreement.
Let’s break it down.
Reconciliation is a process that confirms whether the money leaving an account is the same amount that is spent.
For example, Jane is a cupcake shop owner who keeps all of her receipts and needs to make sure that operation in terms of sales is recorded properly. She reconciles her checkbook and credit card accounts by pulling out her check copies and debit and credit card receipts and comparing them for the month.
Jane notices a discrepancy between a flour order of $1000 and an entry of $1100 credit card charge on the statement.
Jane in a bit of a panic calls up her bank to confirm that she was indeed overcharged for sugar, then she calls the Sugar Inc. and ask the sugar sales person to adjust the charges with a $100 credit for overcharge. Sugar Inc. sales person needs to see evidence that $1000 was the purchase order for sugar
Jane meets us with Sugar Inc. sales manager to see the evidence and receives the credit back of $100.
Account reconciliation is important for businesses as it allows them to spot signs of fraud, overcharges, and prevent any errors on their balance sheets.
Most companies nowadays use accounting software to help them perform their reconciliations.