Clearing Account Reconciliation Frequency
How Often Should You Reconcile Your Clearing or Balance Accounts in Your Accounting System?
Clearing accounts (also known as balance accounts) are temporary accounts used to record transactions that are eventually transferred to their proper accounts. For example, a Shopify balance account holds your Shopify balance pending it being deposited to your bank account.
To ensure the accuracy of your financial records, it is important to reconcile your clearing accounts on a regular basis. Learn more about the benefits and recommended frequency of account reconciliation here.
The frequency of reconciliation depends on the volume of transactions processed through clearing accounts. It's generally recommended to reconcile clearing or balance accounts at least monthly. However, for high transaction volumes, weekly or even daily reconciliations may be necessary.
Regularly reconciling clearing accounts helps identify errors and discrepancies, such as missing or duplicate transactions. Addressing these issues promptly improves the accuracy of financial reports, enabling better-informed decisions based on your company's financial data."
Reconciliation Formula
As a general rule, if you reconcile monthly, you can rely on the following general formula:
Opening balance
(+) Any increases due to money in or sales completed
(-) Any refunds or fees
(-) Transfers out e.g. to your bank account
(=) The ending balance
This ending balance should match the month end balance in the source system such as Stripe.
What can go wrong if clearing accounts are not reconciled at least monthly:
If you do not reconcile your clearing accounts at least monthly in your accounting system, several issues may arise:
Inaccurate Financial Statements
Clearing accounts temporarily hold transactions for allocation. Irregular reconciliation leads to unnoticed errors and discrepancies, resulting in inaccurate financial statements.
Missed Transactions
Without regular reconciliation, improperly allocated transactions may be missed, leading to incomplete records and errors in tax reporting.
Fraud and Theft
Lack of regular reconciliation makes detecting fraudulent transactions difficult, increasing the risk of fund manipulation or theft.
Compliance Issues
Inaccurate financial records can violate regulatory standards, risking penalties or legal action.
Time-consuming Investigations
Irregular reconciliation complicates identifying and fixing errors, wasting valuable business time and causing unnecessary stress.
Regularly reconciling your clearing or balance accounts is essential for maintaining accurate financial records, detecting fraud and errors, and ensuring compliance with regulatory standards.