Credit card reconciliation is the process by which the information in a credit card statement is confirmed to be correct and accurate.
Reconciliation is broadly defined as the process of comparing two different references to the same financial transactions. Credit card reconciliation is the application of that process to the financial information in a particular credit card statement.
To reconcile credit card transactions, accountants will compare the details of those transactions as provided in such documents as invoices, receipts, and transaction statements, with the statements provided by the credit card company.
Credit card reconciliation is an important process that ensures the validity of the business’s financial records. It has many benefits. It helps a business:
Catch errors in data entry
Correct timing discrepancies with credit card transactions, fees, and interest
Ensure the accuracy and validity of financial statements produced by the credit card company
There are two different types of credit card reconciliation:
Credit card statements for purchases by employees with company credit cards
Credit card purchases by customers that are processed through a merchant account
In the case of credit card statements for purchases made on company credit cards, the reconciliation involves several steps.
The first phase of reconciliation is to gather all supporting documents. If a business has many employees who utilize company credit cards, all of their receipts, invoices, and purchase statements must be gathered at the same time to perform the reconciliation.
The next step is to reconcile the supporting documents with the journal entries in the business's accounting ledger.
Then, the business will compare journal entries in its accounting systems with the credit card statements.
When reviewing credit card statements, business accountants will also make sure that all fees and interest have been properly recorded.
All credits and payments will also be confirmed.
Finally, purchases recorded in the credit card statements will be compared to those recorded in the business’s own general ledger.
Timing is sometimes an issue, as credit card statements do not necessarily match up exactly with the beginning and ending dates for the business’s accounting period.
In these instances, multiple, overlapping credit card statements may need to be reconciled when closing a particular accounting period.
In the case of reconciling credit card purchases by customers, the process is not drastically different, except that in this case, the business is on the receiving end of the purchase.
There are some issues unique to this type of credit card reconciliation. For example, some credit card processers charge a fee for transactions, which may be deducted from the payment. Timing and formatting issues in the way that a merchant account provider reports transactions may complicate the reconciliation process. Finally, merchant account credit card reconciliation helps the business identify charge backs, or disputed and refunded charges by customers, so the business can make the proper adjusting journal entries.
Reconciliation is performed in a number of different ways. In addition to credit card reconciliation, other forms of reconciliation include:
Bank reconciliation involves the business reconciling its own financial statements with the statements it receives from the bank
A vendor reconciliation will compare statements provided by the vendor or supplier with the business’s own accounts payable ledger
Intercompany reconciliation is the process of reconciling statements and transactions between units, divisions, or subsidiaries of the same parent company
Business specific reconciliation involves the reconciliation of accounts in a specific business unit, such as a stock inventory or expenses reconciliation
Petty cash reconciliation is the process of verifying that all transactions in the petty cash fund are accurate and substantiated
Account reconciliation is typically done at the end of an accounting period, such as at the time of the monthly close. This ensures that transactions that are being closed out are properly verified and that the closing statements are accurate.
There are two basic types of account reconciliation:
A business can perform account reconciliation by reviewing documents. This is done by examining transactions in the business’s own financial records and comparing those with source documents, such as receipts, invoices, or statements.
A business can also perform account reconciliation by doing an analytics review. This is done by performing a historical analysis and comparing this to current data. If present accounting figures are widely different from projections made from historical data, this may be a sign of irregularities.
Credit card reconciliation is an essential business accounting function. It helps businesses address a number of fundamental objectives in their accounting processes.
All businesses must identify errors, whether they occur in data entry, at the bank account level, because of omission, lack of information, duplication, or for some other reason.
Credit card reconciliation helps identify fraud and unscrupulous spending by employees. All businesses are vulnerable to unscrupulous employees, cyber-theft, dishonest customers, vendors, or suppliers. Account reconciliation can help prevent fraudulent activity by identifying such common practices as duplicate checks, unauthorized credit card activity, or altered invoices.
Credit card reconciliation is an important process to ensure the validity and accuracy of all financial statements. Individual transactions are the building blocks of financial statements produced by the business. It is imperative for the business to verify all transactions before they are relied upon to produce those statements.