Bookkeeping

What does reconciliation actually catch?

Reconciliation compares your ledger line by line against what the bank, card and processor actually report, and anything that does not match gets investigated. In practice it catches duplicate payments, charges you never authorised, deposits that never arrived, fees nobody noticed, transactions recorded in the wrong month, and transfers recorded twice as income.

The duplicates alone usually pay for the attention. Subscription charges that bill twice, a vendor invoice paid once by card and once by check, a payment processor fee being treated as a separate expense when it was already netted out of the deposit — each is small and each repeats monthly until somebody looks.

The more serious category is timing. A transaction recorded in the wrong period makes two months wrong at once: one is overstated and the next is understated, and the margin you look at in both is fiction. Reconciliation is what pins each transaction to the period it belongs to, which is the whole reason a reconciled set of books can be compared month over month and an unreconciled set cannot.

There is also a control benefit worth naming without dramatising it. Regular reconciliation by someone outside the business is how unauthorised activity gets found while it is still small, because the person reconciling has no reason to explain it away.

How are transactions categorised, and why does it matter?

Every transaction is coded to an account in your chart of accounts according to a consistent rule, and Rationale Services documents those rules so the same transaction is treated the same way every month. Consistency is the point: a category that drifts makes your own history useless for comparison.

The failure mode is a ledger where half the spending lands in a catch-all. "General expenses" at eleven percent of revenue tells you nothing you can act on. The same money split into the things it actually was — software, subcontractors, freight, merchant fees, repairs — tells you which line grew and whether you chose it.

Rules also handle the recurring judgement calls before they become inconsistencies: whether an owner's card charge is business or personal, whether a tool purchase is an expense or something capitalised, whether a customer refund reduces revenue or sits as an expense. Those decisions get made once, written down, and applied.

What does a good chart of accounts change about a decision?

A chart of accounts is the list of buckets your money is sorted into, and its structure decides which questions your reports can answer. Rationale Services builds yours around the decisions you actually make — by product line, location, service type or job — so a number that moves can be traced to something you control.

Here is the difference in practice. With one revenue line and one cost line, you learn that margin fell two points and you learn nothing else. With revenue and direct cost split by service line, you learn that one line held steady, one improved, and one fell six points because a subcontractor rate went up in March. The first version produces worry. The second produces a phone call to a subcontractor.

There is a limit on the other side. A chart with four hundred accounts nobody can remember is worse than a coarse one, because coding becomes guesswork and the detail stops being reliable. The target is the smallest number of accounts that still separates the things you would make a different decision about.

How do you handle accounts payable and receivable?

On the payable side, Rationale Services records vendor bills as they arrive, tracks what is outstanding and when it falls due, and gives you a payment run to approve rather than a pile to sort. On the receivable side, we track what customers owe, how old each balance is, and which invoices have gone quiet.

The receivable ageing is the report most owners under-use. Revenue recorded is not cash collected, and a business can look profitable while its cash is sitting in ninety-day balances from three customers. Seeing that in a structured ageing — rather than discovering it when payroll is due — is what lets you act while the relationship is still warm.

Payables cut the other way. Knowing what is actually committed over the next few weeks, as opposed to what has been invoiced, is the difference between managing cash and reacting to it. Where you want this pushed further into forward forecasting, that work sits under financial services.

Do you work from bank feeds, or do I have to send statements?

Rationale Services works from connected bank, credit card and payment-processor feeds wherever they are available, so transaction data arrives automatically rather than waiting on you. Where an account cannot be connected, we agree a simple routine for getting statements across, and that is usually a small handful of accounts.

Feeds are a delivery mechanism, not a bookkeeping method, and this is where a lot of self-managed books go wrong. A feed brings in a description and an amount. It does not know which customer a deposit relates to, whether a transfer between your own accounts is income, or whether a card charge was a business cost. Accepting whatever the software suggests produces a ledger that looks complete and reconciles to nothing.

Payment processors deserve particular care. A processor usually deposits net of fees and sometimes nets refunds and chargebacks as well, so a single deposit can represent several days of gross sales minus three kinds of deduction. Recorded as one lump of revenue, your sales are understated and your fees disappear. We record the gross activity and the deductions separately, then reconcile both to the processor's own reports.

What is the monthly close, and what do I receive?

The close is the point each month when the ledger is finished, reconciled and locked, so the numbers stop moving and can be reported. Rationale Services closes to an agreed date each month and sends you a profit and loss, a balance sheet, a cash summary, accounts receivable and payable ageings, and a short note on anything that needs you.

The note is the part to read first. It is where we say what moved and why — a cost category up because of a one-off purchase, revenue down because one customer's work slipped a month, a balance we could not explain and need your input on. Figures without that context get glanced at; figures with it get used.

After the close, the period is not quietly edited. If something later needs correcting, it is corrected visibly and you are told, because a closed month that keeps changing is a month nobody can rely on in a comparison.

How do you keep sales-tax data in a state I can rely on?

Rationale Services keeps the sales-tax amounts in your records reconcilable to what your billing and point-of-sale systems report, separated by jurisdiction where your systems capture that, and reconciled to what has actually been remitted. The result is a clean figure that stands up when it is reviewed, rather than one assembled under pressure.

The practical work is unglamorous: making sure tax collected is recorded as a liability rather than buried in revenue, making sure exempt and non-taxable sales are distinguishable in the ledger, making sure processor and marketplace reports tie to what the books say, and clearing the liability account as remittances go out so the balance means something.

What applies to your particular business — where and how it is treated — depends on your circumstances, and it is something we work through with you rather than something to read off a page. Our job on the bookkeeping side is that whatever position you take, the numbers underneath it reconcile.

How is bookkeeping different from accounting?

Bookkeeping records and verifies what happened; accounting interprets it and turns it into statements and analysis you can manage from. Rationale Services provides both, and the division is practical: bookkeeping produces reliable data, accounting makes that data answer questions.

In month-to-month terms, bookkeeping is the categorising, the reconciling, the payable and receivable work and the close. Accounting is the structure of the statements, the accrual and allocation judgements, cost-of-sales and margin analysis, management reporting, budgets and variance, and consolidating more than one entity.

Most smaller businesses need bookkeeping continuously and accounting support periodically. As you grow, the accounting side takes on more weight, because the questions change from "is this right?" to "what should we do about it?" The detail of that work is on the accounting page.

How do I know we have outgrown our current bookkeeping?

The usual signs are concrete rather than vague. Month-end reports arrive weeks late or arrive and then get revised. You cannot answer a straightforward question about last quarter without someone going away to dig. Your balance sheet contains accounts nobody can explain. Reconciliations are behind, or nobody can say when they were last done.

A few more that point the same way: the business has added a location, an entity, or activity in another state and the reports still show it all mixed together. Payroll has grown and wage cost is not landing anywhere you can see it. Inventory exists but is not tracked, so your margin is guesswork. You are being asked for figures by a lender and the figures take a week to assemble.

And one that is easy to miss: you have stopped looking. Owners do not keep reading reports they have learned not to trust, and the quiet decision to stop opening them is the clearest signal that the current arrangement has stopped doing its job.

What do you need from me each month?

Three things, and they get lighter after the first couple of cycles: access to anything that cannot be connected by feed, documentation for transactions only you can explain, and answers to a short query list. There is no monthly data-entry burden on your side.

The query list is usually a handful of items — a payment to a name that could be two different vendors, a deposit with no invoice behind it, a card charge that might be personal. Every item you do not answer is a number we have to leave open or code conservatively, and both of those make your reports less useful than they should be.

If you want to cut the list to almost nothing, the single highest-value habit is keeping business and personal spending on separate cards. More queries trace back to a mixed card than to anything else.