How to Reconcile Credit Card Statements
Reconciling credit card statements is one of the most important bookkeeping tasks for a small business. The world is moving quickly towards a cashless society, and more and more transactions are being completed using credit cards or phone apps than ever before.
Reconciling credit card statements and bank statements are both important bookkeeping processes for staying on top of your small business finances. There are a number of common account reconciliation software programs available to help simplify this process, but even when you choose the top software for your application, there is still some manual work and verification involved.
What is credit card reconciliation? Why is it important for your enterprise? The bookkeeping experts at Accountor CPA have all the answers to your questions about how to reconcile credit card statements.
What is Credit Card Reconciliation?
Credit card reconciliation is the process of ensuring that transactions made with credit cards, whether expenses or income, match the transactions that show up on your general ledger. This is how you can verify that transactions on both sides are complete, correct, and valid. Reconciling a credit card ensures the integrity of your records and finances on a daily, weekly, monthly, and annual basis.
There are two credit card reconciliation examples.
- Credit card statements;
- Credit card merchant services.
Credit card statements is the expense side of your business. Any payment your firm makes for goods or services with credit cards must be reconciled using your monthly credit card statements. This includes any expenses made by managers, executives, or other individuals with access to a company credit card.
Credit card merchant services refers to the income side. When a customer pays you by credit card, the payment is processed by your merchant account provider which acts as a intermediary between the point of sale and your bank account.
Both types of credit card statements must be settled and balanced.
Why Do You Need to Know How to Reconcile Credit Cards?
Credit card reconciliation is an essential bookkeeping task for your small business, SME, or corporation.
No system or technology is infallible - even in banks and large credit unions. When things go wrong in their processes, even though this is rare, you need to be sure that the transactions on their end match what shows up in the general ledger.
You need to know how to reconcile credit card statements for a number of reasons:
- Be aware of mistakes or inconsistencies within your statements;
- Verify more complex issues like refunds to ensure they are provided when requested;
- Detect both internal and external fraud immediately;
- Show auditors reconciliation reports when they are requested;
- Increase integrity in your financial statements.
So what are the processes for credit card statement reconciliation?
The Best Way to Reconcile Credit Card Statements
Both types of credit card reconciliation use the same basic process: checking the transactions on a statement against the transactions in your financial record.
First, you must collect all relevant documentation, including digital receipts, paper receipts, statements, and your bookkeeping software. This can usually be done remotely with web-based software and accounts.
Then, compare your transactions in the accounting system to those listed on the credit card statement.
If these do not match, you will have to investigate. There could be any number of reasons why the statements do not align - a missed paper receipt, an oversight by an employee, a deleted email, or a delayed charge. Often, these are innocent errors that can be corrected by tracking down a missing document or asking staff for clarification. Sometimes, however, these mismatches can be an indication of a larger error or fraud.
While reconciling the purchases, interest, and account fees, you should also check that the purchases are coded to the right categories, depending on how you track and manage expenses.
Only once all the numbers are balanced, or match up, are you finished your credit card reconciliation for that period.
Reconcile Credit Cards Smoothly
While reconciling credit cards is not necessarily fully automated and easy, there are a few things you can do to help manage your employees’ use of company funds and simplify your credit card reconciliation on a regular basis.
To simplify your credit card reconciliation over time, there are a few points to keep in mind:
- Ensure every individual with access to an expense account has their own credit card. Avoid shared cards;
- Capture paper receipts by mobile phone directly into a bookkeeping app;
- Eliminate paper receipts as much as possible;
- Use real-time card statements;
- Work with the leading automated reconciliation software for your business;
- Maintain a clear expense policy for employees to prevent frivolous or unnecessary claims and purchases.
Credit Card Reconciliation Examples
There are a number of credit card reconciliation software applications available to help simplify this process for you and take out some of the manual calculations.
Even with automated credit card reconciling, it is important that a bookkeeper spend time overseeing this and managing the reconciliation as well. While automation and technology can largely be trusted, there are still some errors or inconsistencies that are best caught by the human eye.
QuickBooks Credit Card Reconciliation
QuickBooks Online is one of the most popular bookkeeping software programs available and includes robust credit card reconciliation functions.
Reconciling credit cards in QuickBooks Online is as easy as the click of a button - literally. The QuickBooks credit card reconciliation screen allows you to view or amend statement information, match credit card transactions automatically, and trace QuickBooks entries to your statement.
When the accounts are fully resolved, you will see a $0 difference on your reconciliation screen. If there is a discrepancy here, you can easily find unmarked transactions or errors for you to further investigate in the system itself or offline by speaking with your employees.
Once it’s reconciled and there is a $0 difference, you can pay your credit card balance right from the QBO app as well.
Xero Credit Card Reconciliation
Xero also works to automate the reconciliation process with a number of customizable options. It automatically matches transactions documented with lines on your statement. If there are similar transactions and the software is not sure which is correlated, it will provide you with the options so you can select the appropriate match to reduce the risk of errors.
You can create custom rules and labels to file expenses to certain companies under specific categories to help you manage your expenses. You can also create custom labels for expenses not related directly to a bill, expense claim, or transfer, such as coffee for the office that may not have a receipt.
Once everything is reconciled, your screen will show a checkmark next to “reconciled” and you can start running your reports.
How to Reconcile Credit Card Statements in Sage 50
Sage 50 is a more advanced accounting and bookkeeping software, so if you work with this, you may need some extra assistance with how to reconcile credit card statements in Sage 50.
From the Account Reconciliation window, you are able to view all liabilities, or purchases and expenses, and clear the lines that have matches. When something does not have a match and you have to investigate, you are able to add an entry manually to create a match.
Once all matches have been made and general journey entries created, you are able to make your monthly payments.
Credit Card Reconciliation Excel
Do you need credit card reconciliation software to reconcile your credit accounts effectively?
In some cases where your business’ finances are very straightforward, you may be able to simply use Excel or Google Sheets for your credit card reconciliation.
This method of credit card reconciliation is only beneficial in some situations:
- You are a new business;
- You have a low budget and do not want to purchase software yet;
- You have one or two credit card accounts;
- Only one person uses the credit card for business expenses;
- The purchases and expenses are relatively inexpensive;
- There are few expenses per month;
- You only have one bank account;
If your finances are more complex than this, you will be spending hours each day or week reconciling your credit card using Excel. Reconciliation software is a must.
Reconciling a Bank Statement
Reconciling a bank statement is a similar process to credit card reconciliation. In fact, credit card reconciliation is often more difficult than bank statement reconciliation as there are more variables involved. Managers and executives may have access to a company credit card, but chances are, there will not be as many company debit accounts available to employees.
Often, a bookkeeper will reconcile a bank statement and credit card statement around the same time, at the end of the month. These processes often go hand in hand and are an important part of financial well being and transparency within your company.
Bank and Credit Card Reconciliation and Bookkeeping
The bookkeeping experts at Accountor CPA work with our clients to perform credit card reconciliation on a regular basis. Whether you need weekly, monthly, quarterly, or annual reconciliations, we can help manage your software and manual management of these processes. We can also recommend the best bookkeeping software, credit card reconciliation templates, and more.
Even with automated software, how to reconcile credit card statements can still be complex and difficult to navigate. Our experts can manage the details for you and ensure your books are prepared for financial statement generation, audits, analysis, and more. Balancing your credit card accounts does not have to take time out of your busy day.
Contact us today for a free virtual consultation for your credit card reconciliation.
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