Latest / The Cynical CPA / Things That Go Bump in Your Books: The Reconciliation That Won't Die
Transcript
- Corrine Hasbany: Welcome to The Cynical CPA, the podcast where accounting meets real life and we keep it blunt, honest with zero sugarcoating. I'm your host, Corrine Hasbany CPA, Enrolled Agent and founder of XAct Accounting Services. Each episode, we cut through the accounting jargon, tax confusion and bookkeeping chaos and tell you what actually matters. No fluff, no spin, just real talk, real numbers and the truth you wish your accountant told you sooner. Let's get into it. Welcome back to the Cynical CPA, the podcast about accounting, taxes, and everything in between. I'm Corrine Hasbany, CPA and enrolled agent, and it's my favorite time of year. How many of you thought I was going to say tax season? Nope, it's spooky season. So I thought we'd have a little fun. Because you know what's scarier than a haunted house? Opening your books and finding those numbers that just don't belong. So welcome to my October series, Things That Go Bump in Your Books. Over the next four weeks, we'll look at some common accounting and bookkeeping situations that can feel a little spooky. And before we get started, just a quick note the Cynical CPA is here to talk about accounting and tax topics in a way that's easy to understand. But this podcast is for general educational and informational purposes only. Tax rules and accounting treatment can vary depending on the circumstances, so nothing you hear should be considered personal tax or accounting advice. If you have a specific situation, Talk to your accountant and tax professionals. Okay, let's get spooky. We're starting the series talking about something that doesn't sound scary at all until you actually have to deal with it. The bank reconciliation. And more specifically, the bank reconciliation that wouldn't die. A bank reconciliation is comparing the activity in your accounting records with the information on your bank statement. It helps you check the money coming in and the money going out. has been recorded correctly. Now the balances may not match exactly at first. Maybe you have an outstanding check or a deposit that hasn't cleared the bank yet. Those timing differences can be perfectly normal. The reconciliation helps you account for them and understand what's behind the numbers. But let's say your books show 50,000 in the bank and your bank statement says 40,000 and somebody says, that's okay, it'll work itself out. No, that's when I want the flashlight. The difference has a reason. Maybe there are outstanding checks. Maybe a deposit hasn't cleared yet. Maybe a transaction was entered twice. Maybe a transaction was never entered, or it was recorded for the wrong amount. Maybe a transfer was recorded incorrectly. There can be a perfectly explainable reason, but you need to find it. And what if the reconciliation hasn't been done for a few months or a year? It's tempting to look at the bank balance and think. The bank says I have $42,000, so the books must be fine. Not necessarily. The bank can tell you how much cash is in the account. Your books are supposed to explain what happened. Money came in, money went out, checks are written, payments were made, and transfers happened. If those things aren't recorded and matched properly, the books can start telling a different story. Sometimes the first sign of a problem doesn't show up until tax time. And that is when the scary music usually starts. One thing that can happen when reconcilient is that old transactions keep hanging around. Month after month, they get carried forward. Eventually someone looks at the reconciliation and asks, why is this transaction still here? That's when the investigation begins. Maybe it's an old check that was never cashed. Maybe that check was replaced. Maybe it was entered incorrectly. Or the original transaction was already dealt with somewhere else. The point is don't assume an old transaction is meaningless just because it's old. And then there are duplicates. A transaction gets entered, then it comes through your accounting software's bank feed. And now it's in the books twice. If no one catches it, the books may overstate the activity. That's why bookkeeping isn't simply download everything from the bank and call it a day. There still has to be a review. A reconciliation isn't just a bookkeeping chore. It's one way to check whether the accounting records reflect what's actually happening. And here's something I tell people all the time a bank balance is not the same thing as a financial statement. Your bank can tell you how much cash is sitting in your account. Your accounting records are supposed to tell you more. They help tell the story of your business. So if your reconciliation has become a little well undead, Don't just keep clicking reconcile and hope the problem disappears. Find out what's making the numbers different. Because ghosts don't disappear just because you stop looking at them. In our next episode, we're going to follow the trail of your business's money to uncover why all that income isn't sitting in the bank. The clues are in the books, and the mystery is coming up, and the second thing to go bump in your books, the mystery of the missing money. Thanks for listening to the Cynical CPA. I'm Corinne Hasbany, and until next time, keep an eye on those numbers and don't let a ghost transaction follow you into the next month. Thanks for listening to The Cynical CPA. If you liked what you heard, make sure to follow for more real talk about accounting, taxes, and everything in between. No fluff, no sugarcoating, just straight talk and clarity because someone has to say what your accountant is really thinking. Until next time, remember numbers don't lie, but they do need a translator. And that's where The Cynical CPA comes in. If you're ready to stop guessing and start gaining clarity in your numbers, head to xactaccountingservices.com and click on Let's Connect.