Reconciling expenses: how to balance your accounts in less time

Completing a company’s expenditure reconciliation is a simple, routine task. Still, every month, finance teams waste time (and a good night’s sleep) on the arduous process of closing the books.

The primary concerns are universal for firms, as we shall see. They’re not hard to understand, either.

But it’s frequently hard to think that there are better methods of doing business since organizations have worked a certain way for so long.

Yes, in fact. When you give it any thought, the difficulties of reconciliation become immediately apparent, as you’ll discover in this piece. The good news is that the answers are equally as glaring and elementary.

In finance, what is reconciliation?

The process of financial reconciliation is comparing and confirming the accuracy of two sets of records. Ensuring your records are accurate, confirming that the revenue and expenditure in your accounts and books match, and looking for any errors, fraud, or misconduct are the objectives of this process.

The simplest straightforward illustration is comparing cash inflow and outflow accounts to income statements: does your closing bank balance match revenue less spending?

At the conclusion of each month, payment reconciliation usually takes place. Each year, finance staff must also perform the infamous end-of-year financial closure procedure, which may be laborious and time-consuming. Soon we’ll look at several important strategies for enhancing monthly and annual closure.

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What exactly is reconciling expenses?

To make sure that a company’s actual costs match those that were noted in its general ledger, expense reconciliation employs the same method of record checks. Accountants and financial controllers check primary records such as receipts and invoices with expenditure claims and transaction histories.

Knowing that your finances are adequately taken care of in a one-person business is quite simple. You make every purchase, and you are aware of the revenues.

Verifying that everything is legal is more crucial in a larger organization when workers are making purchases on the company’s behalf.

The reconciliation process enables businesses to verify that each payment was authorized, verified, and accompanied by a receipt. Otherwise, it’s difficult to track the company’s financial activity.

Why is it challenging to reconcile expenses?

The process of reconciling payments is tedious and rarely appreciated. Despite the fact that it should be rather ordinary.

The problem is not with the job itself. The issues, as we shall see, originate in subsequent procedures.

Some of the most pressing issues that arise right before closing time are discussed here.

Separated data sources

The fact that information often comes from several sources is the most evident problem. These may incorporate:

  • Requests from team members or purchase orders
  • Accounts from credit cards
  • Unorganized receipts or purchase records
  • Bills, whether paid or unpaid
  • The manager approves in writing (or even verbally!)

Your responsibility is to confirm that the details on each of these transactions match and are accurate.

However, each of these data sources has its own unique design. No matter how your purchase orders are formatted or whether a manager approved the payment, your credit card statement doesn’t care.

A regrettable amount of time is wasted by financial controllers merely visually matching payments. It can be tedious and lengthy, but it’s not always difficult.

Delays built-in

Using numerous data sources has its own peculiarities, one of which is that they operate on different timescales. A few days into the new month, you start receiving credit card statements (reflecting the month before). Perhaps they’ll be a full month late.

If there are any problems with the statement, you won’t be able to close the books for the month in question until the following month.

It’s not uncommon for businesses to submit cost reports as an illustration. Let’s pretend some of your team members are traveling regularly. They’ve shown that they’re reliable and can be trusted with financial paperwork. Thus, these require a few hours every month on the last Friday to report all of their costs.

This implies that on the last day of the month, you will be inundated with expense reports and related paperwork. It takes more time to close the books because undoubtedly, someone will make a mistake. And now you have a throbbing head.