What is the difference between reconciling your accounts & categorizing?

I have noticed this common misconception among small business owners who are unfamiliar with bookkeeping, it seems many think categorizing and reconciling are the same thing.

Categorizing is quite literally designating transactions into a specific category, based on what the expense was for, this helps business owners understand where they are spending their money. This gives valuable insight as far as budgeting and planning goes. It’s also vital for tax preparation each year.

Reconciling your accounts is the act of comparing the record of bank transactions (that you categorized) and the bank statement, or other supporting document depending on what account you’re working on, to ensure accuracy. This is an important step and can help business owners catch any mistakes quickly.

If there are duplicate transactions, or missing transactions, reconciling is where you will catch those things. This matters, if your numbers are skewed because of missing transactions you could end up paying more in taxes, or under-reporting your income, and you simply won’t have a clear picture of your business, because your reports will be incorrect.

And what’s the point of even keeping your books if the numbers are incorrect?? Without accurate data you can’t make well informed decisions about your business.

If you would like me to take these time consuming tasks off your hands feel free to reach out, you can schedule with me today.