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What is bank reconciliation and why does it matter?

Bank reconciliation is the process of comparing your internal accounting records to your bank statement to verify they match. Every transaction in your books should have a corresponding entry on the bank statement. When they don’t match, you investigate until you find out why.

The process catches two types of problems: mistakes in your records and mistakes by the bank. Your records might show a transaction coded to the wrong amount, a duplicate entry, or a missing deposit. The bank might have processed a duplicate charge, applied a fee you didn’t expect, or posted something to the wrong account. Reconciliation surfaces these discrepancies before they compound into bigger issues.

Knowing your actual cash position is one of the main reasons reconciliation matters. The balance showing in QuickBooks means nothing until it’s been reconciled. You might think you have $15,000 available when the bank actually shows $12,000 because of outstanding checks, pending transactions, or recording errors. Decisions based on unreconciled numbers lead to overdrafts, missed payments, and poor planning.

Fraud detection is another benefit. Unauthorized transactions, forged checks, and employee theft often get discovered during reconciliation. If nobody is reviewing every transaction against the bank statement, money could be disappearing for months before anyone notices.

Accurate financial statements depend on reconciled accounts. Your profit and loss, balance sheet, and cash flow reports are all built from the transaction data in your ledger. If that data doesn’t match reality, your reports are misleading. You can’t know your true profit margin or plan for taxes when the underlying numbers are wrong.

How often should you reconcile? Monthly is the standard for most businesses. A bookkeeping service will reconcile all your accounts as part of the regular monthly process. If you have high transaction volume or tight cash flow, weekly reconciliation gives you better visibility. The longer you wait between reconciliations, the harder it becomes to investigate discrepancies because you’ve lost context around older transactions.

Common differences found during reconciliation include outstanding checks that haven’t cleared, deposits in transit, bank fees that weren’t recorded, and timing differences between when you recorded something and when it hit the bank. Most are explainable and easy to resolve once identified.

For San Diego businesses using QuickBooks Online, the bank feed feature pulls in transactions automatically. But accepting imported transactions is not the same as reconciling. You still need to verify that the ending balance in your books matches the ending balance on your statement with any differences accounted for.

Monthly bookkeeping includes reconciliation as a foundational step because everything else depends on it. Without reconciled accounts, the financial reports aren’t reliable, the tax numbers aren’t accurate, and you don’t have a clear picture of where your business stands.

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More Questions

What financial reports should I review monthly?

Every business should review the profit and loss statement, balance sheet, and cash flow statement monthly. Adding accounts receivable and payable aging reports helps you spot collection issues and plan for upcoming bills.

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What is the difference between a bookkeeper and an accountant?

Bookkeepers handle ongoing financial recordkeeping like categorizing transactions and reconciling accounts. Accountants analyze that data, prepare taxes, and provide strategic financial advice. Most small businesses need both working together.

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How often should I update my books?

Monthly is the minimum for most small businesses. Weekly works better for high-volume operations or when you need current numbers for decisions. The key is establishing a consistent rhythm so your financial picture stays useful.

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How long should I keep my business financial records?

Keep most business financial records for seven years. This covers IRS audit periods and California state requirements. Some documents like formation papers and major asset records should be kept permanently.

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How do I track business expenses properly?

Separate business and personal finances completely, record expenses promptly with the right category, and save receipts digitally. Reconcile your accounts weekly to catch mistakes while you still remember what happened.

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When should I hire a bookkeeper for my small business?

Hire a bookkeeper when you're spending several hours monthly on bookkeeping, when you can't answer basic questions about profitability, or when tax season becomes a scramble. Most business owners wait until their books are already messy. The better approach is getting help before problems compound.

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Fresh Ledger provides full-service bookkeeping for San Diego County's small businesses. We handle monthly financials, payroll setup, and part-time CFO services for local business owners who want their numbers done right.

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