Expense reconciliation can be a nightmare for small business owners and their accountants. Delays in accessing the entries of transactions and disorganised data are some of the leading causes of difficulties in expense reconciliation. But it is possible to overcome these challenges and carry out expense reconciliation of your business efficiently and cost-effectively. This blog post will teach you how to simplify expense reconciliation for your small business. 

 

What is Expense Reconciliation? 

Expense reconciliation is a procedure of ensuring the business expenses on records agree with the bank balances. Expense reconciliation is a subset of financial accounting. 

Your business incurs all expenditures, including salaries, paying suppliers, and utilities.

Typically, you record expenses using accounting software or a simple spreadsheet. Some small business owners even use hardcopy ledgers to record expenses and income. 

 

What Is Double Entry Accounting? 

It is easy to understand how expense reconciliation works by revisiting the concept of double entry in accounting. Double entry means that every transaction has two sides: debit and credit. The total amount of the debit side must equal that of the credit side. 

Please note that the focus is on the total amounts on the two sides, not the number of transactions. One transaction can have a single entry on the credit side but multiple smaller entries on the debit side. However, the totals on the two sides must cancel out for the books to balance. 

 

Importance of Expense Reconciliation 

The volume and complexity of financial transactions increase as your small business grows. It may be a huge challenge to understand the financial position of your growing business at any given time. Expense reconciliation helps you track business expenditures and avoid unnecessary spending. Here are some of the essential benefits of expense reconciliation. 

 

Correcting errors 

Financial errors can have adverse effects on your business. Such errors can occur at any stage in the financial accounting cycle. For example, you or your accountant can make mistakes when keying in raw data. Also, missing details about certain transactions may cause you to omit the expenses from the books. 

 

These minor mistakes can harm your business’s financial position. Minor errors typically accumulate over time. You will then end up with statements and reports that do not accurately reflect the financial position of your business. 

 

Expense reconciliation helps you to detect and correct such accounting errors. You can countercheck every transaction while reconciling the expenses of your business. 

 

Understanding the business’s financial position 

The financial position of your business shows whether the venture is making a profit. It is vital to get a clear picture of the business’s financial status at the end of every month. You can use the details to budget and make other financial plans. 

 

However, it is only easy to understand the financial status of a business with accurate details about expenses. Reconciling all expenses makes it easy to know where your business stands at any given time. 

 

Detecting fraud 

Financial fraud can drain your business finances and even lead to bankruptcy. It is difficult to detect fraud in your business when the volume of transactions increases rapidly. 

The expense reconciliation process is an effective way of detecting and mitigating fraud. You can easily find missing deposits or unauthorised expenses when reconciling the expenditure figures. Furthermore, the process is critical for expense management, thus helping you to avoid losing money. 

 

Ways to Reconcile Expenses 

There are three distinct ways of reconciling expenses: (a) paper records, (b) spreadsheets, and (c) accounting software. Every one of these methods has advantages and disadvantages. The size of your business and personal preferences will determine the suitable method. 

 

Using paper records 

Using paper records is the oldest method of reconciling business expenses and maintaining accounting records. You must maintain a ledger for expenditures and other bookkeeping and accounting books in hard copy. 

 

This method is ideal for small businesses that do not have a lot of complex financial transactions. Moreover, anyone with basic bookkeeping knowledge can maintain the ledger book. The ledger contains details about income and expenses. 

 

There are two significant disadvantages of using paper records to reconcile business expenses. First, this method consumes a lot of time. You must rely on something other than it when your business scales and the number of transactions increases. Second, this method of reconciling business accounts is prone to errors. Anyone maintaining a ledger for a business can make many mistakes when writing down the figures for specific expenditure items. 

 

Spreadsheets 

You can use spreadsheets for expense management. Spreadsheets are better than paper records because they offer additional functionality. Using an automated formula, one can rely on them to quickly track recurring expenses and calculate essential functions like addition and subtraction. It is also possible to compare data sets using spreadsheets. You need advanced knowledge to do this. 

 

Spreadsheets are better than paper records; however, there are better methods for reconciling the expenses of a large business. You cannot generate detailed reconciliation reports when using spreadsheets. 

 

Besides, using spreadsheets consumes much time because a person must enter the raw data into the sheets and carry out basic functions. Further, you can make many minor errors when using spreadsheets for expense reconciliation. Therefore, spreadsheets could be better for large businesses. 

 

Accounting software 

Accounting software or applications are tools that handle all business bookkeeping and accounting functions. These solutions have all the features necessary to complete the entire accounting cycle, including expense management. The software can generate in-depth reports because the apps have an inbuilt analytical capacity. 

 

Consider using accounting tools for your business for several reasons. These tools can handle large volumes of data without a hitch. Switching to accounting software is a good idea if your business is growing fast. 

 

 

In addition, it is easy to install and manage accounting software. Many accounting applications exist as Software as a Service or SaaS. The companies that manufacture and sell them will give you access after you pay. Also, you can choose between monthly and annual subscription options. 

 

The only underside of using accounting software for expense reconciliation relates to data types. One must understand how to optimise the software to capture and analyse data from unrelated sources accurately. 

 

How Can Grof Help Expense Reconciliation? 

Grof provides a comprehensive expense management tool for businesses. This tool can simplify expense reconciliation for your business in several ways. For example, using the software from Grof gives you real-time details about the company’s financial status. You need such information at any time to make informed decisions about the future of the business and for expense management. 

 

Moreover, utilising our business account not only helps you maintain accurate financial records but also reduces the requirement for employee reimbursements through the Corporate Cards functionality. This empowers your team to concentrate on substantive tasks with greater freedom.

 

Conclusion 

Expense reconciliation entails counterchecking business expenditure records against bank transactions. This process is necessary to counter fraud, understand the business’s financial position, and minimise expenses. You can reconcile costs by using paper records, spreadsheets, or accounting software. Paper records and spreadsheets are not versatile and reliable methods of reconciling business expenses. 

 

Expense management tools are the best because they are easy to install and maintain. Besides, the applications provide timely information and detailed reports about expenses. Sign up for a free account today!