The goal of reconciliation of any account or statement is to ensure that the information inputted into financial management software, general ledgers, or other financial documentation software programs is accurate based on what is reported elsewhere. In the case of credit card reconciliation, the goal is to ensure that the information presented in this account matches the information in a GL account or other recording.
The reconciliation process is a type of accounting system. It helps to make sure that the credit card transactions that are logged in a credit card statement match the same transactions listed on the company’s general ledger. It is necessary for effective bookkeeping and financial management that every transaction is verified to ensure it is accurate and that it is recorded in the proper method. Any errors need to be addressed to ensure that the information is properly recorded for various other purposes.
Businesses typically need to know that each transaction they have is recorded properly. This allows for verification that the transaction took place and that the transaction was recorded as it says it is.
The credit card reconciliation process may be done by a business’s accountant but can also be done within bookkeeping and accounting software. The process simply compares the credit card statement or credit card statements for the given period of time to the general ledger for the company.
The general ledger for the company accounts for all of the financial transactions the company has had over a period of time, such as for the month, quarter, or an ongoing ledger. This ledger accounts for all transactions paid out, such as expense payments, payments to cover a corporate card balance owed or any other costs. In addition, the ledger records any type of income coming into the company as well. It has the purpose of ensuring that all information is accurate and carefully verified to ensure that the books balance.
When the ledger matches the statement, it is then considered accurate. The books can be closed for that account.
What Occurs When There Is Not a Match?
There are some situations in which the balance, expense, or other accounting into the ledger does not match what is on the credit card statement. The reconciliation process then helps to determine where the difference exists. This allows for companies to verify that the transaction did occur but also that it was properly classified and recorded.
In some situations, the charges on a statement may be wrong. In this case, the card statement and receipts may be used to help verify that the transaction is inaccurate so that the credit card company can update the transaction to ensure accuracy. Sometimes the matching of charges and payment is simply not recorded properly within the GL account. That allows for the fix to be fast and simple, allowing for simple changes to occur in the recording of the transaction.
Why This Information Matters
There are many reasons why a credit card statement and accounting software may not match. Small problems may not seem significant, however, this can add up later and create an accounting problem.
In addition to this, it may be necessary to verify more information about the receipts for an account or that the credit card account is being used properly. The reconciliation process may help to show fraudulent charges and pinpoint an expense that was not recorded or a balance difference that may alert to misuse of funds.
The most important reason for the use of credit card reconciliation is to ensure accuracy in the books for the company. While accounting software can handle all of the work of calculating reports and gathering information from various sources, it often relies on human input to be accurate. There are many situations in which this may not happen, or a simple typo can lead to a significant concern that does not immediately become obvious with a statement.
When it comes time to make a payment on a credit card account, it is possible to do so with confidence knowing those charges are accurate if the bank reconciliation process has occurred and the transaction is properly recorded.
Most of the time, reconciliation like this is done on a consistent basis to ensure the books remain accurate going forward. The process often happens each month. In addition to this, larger closing processes also occur annually, which creates a more intense look at account information. In every situation, once the accounts are matching, it is possible to then assume the accuracy of the information and close the books for that period of time.
Reconciliation like this is a standard part of financial accounting and management for any business. It is not something that is overlooked in terms of overall financial management because of the importance of accuracy.