Benefits of Reconciling Your Credit Card Statements

When tax time comes around, do you have your paperwork together, and are all your statements reconciled? Before you start pulling your bank statements and backup support paperwork together for your accountant for the prior year’s tax return, you should go through and reconcile your credit card statements for your small business.

Crucial Benefits of Reconcile Your Business Bank Accounts

Why? You may ask. We all know reconciling a bank account makes it easier to confirm the correct funds. It will also limit the error of bounced checks and improper account payable management. However, if you use a credit card for your business supply purchases, keeping your money management software or online account accurate will clear any issues arising each month instead of waiting to figure out the errors at the end of the year, saving you tons of time during tax season.

But if you are not convinced yet, read this post, which explains the benefits of reconciling your bank and credit card accounts. 

Maximize your tax deductions.

You will ensure you have every transaction accounted for on your tax return. If your transactions are miscategorized or not included at all in your P&L report, it can easily be overlooked. Don’t expect your accountant to review all the transactions line by line. They have other things they need to deal with in your tax return than reviewing transaction details. This task is something you or your bookkeeper (like me) can do for you every month.

Prevent fraud internally and externally.

If someone uses your card for personal use, you will only know that if you cross-reference the receipts with the credit card statements. With all the credit card numbers stolen these days, it helps you ensure all the transactions are legitimate and you have made them for your business.

I had a client allow an assistant to use her credit card. After the client abruptly left, she noticed there were charges on her credit card. It turns out the assistant had charged $150.00 on her card. She didn’t reconcile the account right away, so she didn’t know until the assistant had left her business.

Don’t allow yourself to be financially vulnerable. Trusting people is great, but not taking responsibility for your finances can result in problems down the road. 

Find mistakes and errors in a timely manner.

The data entry or downloaded data could be incorrect. I have experienced credit card and bank companies downloading duplicate information, resulting in duplicate charges and deposits, which took much time to clear up.

Taking the time once a month to visit all the statements (credit card and bank) will help you work with just a snippet of transactions at a time. Since there will not be a lot of transactions each month, you can easily flag the ones that are incorrect on the credit card statement. Dealing with this when you are audited or at the end of the year maybe even more stressful and can result in major headaches.

Update 2024: Recently, I had a client who realized she was being charged for services she was told would be a benefit on her new credit card. Because she had waited for so long, they were only able to reimburse her for the charges for the current year, not the prior years. She was out hundreds of dollars because she did not spot the error sooner.

Assist with Budgeting and Forecasting

Update 2024: If you visit these credit card statements regularly and reconcile them, you will see a pattern of expenses increasing or decreasing from a vendor you pay. With the high inflation we have had for the last few years, we have learned that an increase in costs affects our bottom line, and we may have to increase our service fees to compensate for this adjustment.

But, if you choose not to reconcile the credit card, you will never see the patterns and be able to forecast an increase as needed, resulting in higher expense costs for your business.

Support Credit Card Receipts Organized

Another benefit of reconciling your credit card is that it helps keep your support paperwork for your credit card account organized. Visit my post here about keeping credit card receipts.

One way to do this is to have an envelope where you can hold the monthly receipts. Then, when you reconcile the credit card, you can check off the receipts you have and staple them to the credit card statement. This way, if you get audited or if your accountant has an end-of-year tax return question, the paperwork for each of the transactions is included with the credit card statement.

Do THIS Task Right Now

For this year, add a recurring appointment to your calendar to remind yourself to reconcile your credit card and bank statements each month. Use the date that those particular statements come in. For example, if you get the credit card statement on the 5th of the month, add a recurring appointment to the 5th of every month as a reminder.

By making an appointment each month to complete these tasks, you will remind yourself to do this task and hopefully deter you from forgetting about them or not making them a priority. 

Conclusion

I hope this post motivates you to start reconciling your credit card accounts each month. Whether you use your credit card frequently or sparingly, it is best to have all the transactions matched with the banks’ information. Your accountant and your business will thank you.

If you are looking for a bookkeeper to help you keep track of your reconciling accounts, feel free to contact us. 

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