What Happens In Month-End Reconciliations?

Cassidy Jakovickas

May 15, 2024

Keeping accurate financial records is crucial to the success of any business. One of the most important steps in maintaining accurate records is performing monthly reconciliations, also known as month-end reconciliations. In this article, I’ll give you an overview of monthly reconciliations and their importance and list steps to perform reconciliations in QuickBooks Online.

What are monthly reconciliations?

Monthly reconciliations are the process of comparing your financial records, such as your bank and credit card statements, to your accounting records to ensure that they match. Reconciling your accounts on a monthly basis, you can identify errors and discrepancies early and avoid costly mistakes.

Why are month-end reconciliations important?

Reviewing accounts and reconciling transactions helps finance staff and management see where they’re falling short on revenue or profitability estimates. Reconciliations also allow businesses to improve cash flow during times of severe logistics issues, significant inflation, or economic uncertainty.

There are many other benefits of month-end reconciliations including:

  • Accurate financial statements: Month-end reconciliations ensure that financial statements are accurate and match business records. This helps businesses make informed decisions about their financial health and performance.
  • Better cash management: Reconciling accounts at the end of the month helps businesses maintain the correct cash balance and track expenses. This allows businesses to identify discrepancies or errors in a timely manner and avoid overdrawn accounts or bounced checks.
  • Fraud detection: By reconciling accounts, businesses can detect fraudulent activity or errors in a timely manner. This helps you prevent financial loss and brand damage to your company’s reputation.
  • Compliance with regulatory requirements: Monthly account reconciliation is essential for tax preparation and maintaining compliance with regulatory requirements. It also helps you avoid noncompliance penalties and legal issues.
  • Improved planning: By reviewing financial statements and reconciling accounts each month, you can identify areas of improvement and adjust their strategies and pricing mid-year. This helps you improve cash flow and increase profitability.
  • Better relationship with investors and lenders: Accurate financial statements and reconciliation of accounts help you build and maintain trust with investors and lenders. This can lead to better investment opportunities, more favorable lending terms, and increased access to capital.

How to do month-end reconciliations in QuickBooks Online

QuickBooks Online is a cloud-based accounting software that offers users a convenient way to perform their month-end reconciliations. Using QuickBooks Online (QBO), you and your accountant or bookkeeper can log in and access financial reports and transaction information – even when you’re on the go.

There are many reasons why QBO is ideal for performing month-end reconciliations, including:

  • Shared access to data with employees and your accountant: One of the main benefits of using QuickBooks Online for month-end reconciliation is that it offers collaborative access to data. This means that employees and accountants can access the same data without having to send files back and forth. Using QBO makes it easier to collaborate and to ensure that everyone is working with the same financial information.
  • Cloud access to financial information: Another benefit of using QuickBooks Online is that there is no software or local data to manage. This means that there are no upgrades or release updates that need to be installed on each computer. This makes it easier for businesses to maintain the software and ensures that everyone is working with the same version of the software.
  • Regular syncing and nightly automatic downloads: QuickBooks Online makes it easier to integrate with other apps and schedule automatic downloads. This means that users don’t have to manually download and import data from other apps, making it easier to keep all their data in one place. Bank and credit card transactions download nightly, making it easier to reconcile accounts at the end of the month.

How to reconcile your accounts in QuickBooks Online

You can follow these steps to start reconciling accounts in QuickBooks Online:

  • Connect your bank and credit card accounts to QuickBooks Online.
  • Categorize all transactions.
  • Once you have your monthly bank statements, go to the Reconcile tab in QuickBooks Online.
  • Select the account you want to reconcile and enter the ending balance and ending date from your bank statement.
  • Review each transaction and compare it to your bank statement.
  • Make sure that the difference between the account in QuickBooks Online and the statement in question is $0.00.

Best practices when performing month-end reconciliations

  • Set a regular schedule for reconciling your accounts: It’s essential to set a fixed schedule for reconciling accounts each month to avoid missing any accounts. This schedule should be communicated with the accounting team to ensure all accounts are reconciled within the set timeline.
  • Keep accurate records of all financial transactions: Businesses need to keep accurate records of all financial transactions, including bank statements, invoices, receipts, and any other financial documentation. This documentation serves as a source of information during the reconciliation process.
  • Always double-check the opening balance: When reconciling accounts, it’s critical to verify the opening balance in the accounting system matches the opening balance in the bank statement. Any discrepancies should be addressed promptly to avoid errors in the reconciliation process.
  • Make sure to reconcile all accounts: Credit card transactions, accounts payable, accounts receivable, payroll, fixed assets, subscriptions, deferred accounts, and other areas must be compared against your general ledger or balance sheet.
  • Review all transactions for discrepancies and follow up promptly: All transactions should be reviewed carefully to identify any discrepancies or errors. If discrepancies are found, ensure they’re addressed promptly to avoid errors in the financial statements. Additionally, businesses should follow up on any discrepancies to ensure the issue is resolved and prevent future occurrences.

Automate month-end reconciliations to increase accuracy and reduce workload

Automating reconciliations can significantly reduce the time and effort spent on month-end close processes, allowing accounting teams to focus on more value-adding tasks. Here are some steps on how to automate reconciliations:

  • Identify areas for automation: First, identify the areas of the reconciliation process that can be automated. Do you want to match invoices and payments automatically? Are you looking to set up bank feeds? Clarifying the question will make it easier to find the right app for your needs.
  • Choose the right software: There are many accounting software programs available that offer automation features, such as automatic bank feeds and invoice matching. Choose software that meets your needs and integrates with your existing systems.
  • Set up automation workflows and bank feed rules: Once you have chosen your accounting software, set up automation to streamline the reconciliation process. This can include importing bank transactions with bank feeds, matching invoices with payment transactions, and auto-flagging discrepancies.
  • Train your team: Ensure your accounting team is trained on the new automation workflows and software. They should understand how to use the software and how it integrates with your other accounting systems.
  • Monitor and refine: Keep an eye on the automated reconciliation process and make adjustments as necessary. This could include tweaking the workflow or changing software if it’s not working as expected.

Automating reconciliations can save significant amounts of time and reduce the risk of errors. By streamlining the month-end close process, accounting teams can spend more time on strategic tasks and deliver more value to your business.

Contact MBS Accountancy for accounting help!

If you’re looking for reliable accounting and bookkeeping services, contact us today! Our experienced professionals will help you with all your financial needs, from monthly reconciliations to tax preparation, and everything in between. Contact us today and let us take the stress out of managing your finances. At MBS Accountancy, we’re here to help you succeed.