Credit Card Reconciliation: What It is and How to Do It?
Do you know what credit card reconciliation is? If not, don't worry, you're not alone. Many people need to learn what credit card reconciliation is and why it's essential.
Business credit cards were all the rage before the pandemic, with over 67% of business owners having a business credit card. After the pandemic, business credit card payments showed a strong positive trend, with a market evaluation of $14.1 Billion in 2020 only for North American regions.
With the rising company transactions comes the credit card reconciliation or reconciliation process. It ensures that credit card transactions match your bank statement transactions. While it sounds simple, many intricacies are involved in the process.
This article will define credit card reconciliation and discuss the two types of reconciliation. We'll also explain why credit card reconciliation is important for businesses and individuals. Finally, we'll provide instructions on how to do credit card reconciliation in Excel and manually.
What is credit card reconciliation?
Credit card reconciliation is the process of matching credit card statements with receipts and invoices to ensure that all charges on the credit card are accounted for. This process is important for businesses and individuals, ensuring that all expenses are properly accounted for and reported.
Also, credit card reconciliation is the process of confirming that all transactions on your credit card statement are properly reflected in your accounting records. It's important to reconcile your credit card statements because it helps you make sure that:
- You have enough money in your checking account to pay the amount due on your statement when it arrives.
- Your credit card company charges you for all the transactions it has recorded and not for any more you owe.
- You're not being charged interest on purchases made before the last statement arrived because those charges should be included in the next statement.
What are the two types of credit card reconciliation processes?
There are two types of credit card reconciliation: manual and electronic.
The manual credit card reconciliation process matches credit card statements with receipts and invoices. This process can be time-consuming and prone to error. What you do is, sit with your bank statement and your expenses log (if you maintain one) and see if there are any mismatches.
During the electronic credit card reconciliation process, you use automated expense management tools or semi-automated software like Excel and a reconciliation template to electronically match credit card statements with receipts and invoices. This process is much faster and more accurate than manual reconciliation.
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Why is credit card reconciliation important?
Credit card reconciliation is important for businesses and individuals alike.
For businesses, credit card reconciliation ensures that all expenses are properly accounted for and reported. This is important for tax purposes and financial reporting. For individuals, credit card reconciliation ensures that all charges on the credit card are accounted for. This is important for budgeting purposes and for avoiding credit card fraud.
Also, credit card reconciliation is important for a few reasons.
First and foremost, it helps you ensure you're not overspending on your credit card. Reconciliation allows you to see exactly how much money has been spent on the card and the outstanding balance, so you can keep track of your spending, avoid overdrafts, and make sure your bills get paid on time.
It's also important because, in many cases, businesses use credit cards to pay for employees' purchases or reimburse them for business expenses. Credit card reconciliation helps companies to keep employee spending in check. Without a good reconciliation process in place, it's easy for an employee to claim that they've spent $1500 on travel when in reality, they’ve spent $150—and then not have any proof that they only spent $150.
Why is reconciling credit cards difficult?
Reconciling credit cards can be difficult for several reasons.
First, credit card statements often arrive after a particular time period, making it challenging to match charges with receipts and invoices.
Second, credit card companies often charge late payments and annual and foreign transaction fees. These fees can be difficult to keep track of.
Finally, credit card companies often change their terms and conditions, making it difficult to track what you're being charged for.
Reconciling credit cards is difficult because of the way that merchants and banks report transactions. Merchants must register all sales, even if a credit card is declined or an issue with the card. Banks also have to report any transactions that aren't paid by the customer—even if the bank pays them. And because most banks charge fees for each transaction, these can build up quickly and make your business look unprofitable.
The best way to avoid this problem is to keep detailed records of all your transactions. This will allow you to reconcile your credit card statements when they come in so that you don't have to pay unnecessary fees or overdrafts on your account.
How to do credit card reconciliation?
Gather your documents
The gathering of the necessary documentation is the first step in this process. You will need the statements and receipts for any purchases made with a credit card for each company credit card account.
If you need an expense management tool that manages employee expenses, this may require you to track down individual employees. You can use a bank reconciliation or employee reimbursement template to kickstart your process.
Check your transactions
The following step is to examine the transactions recorded in your accounting software alongside those listed on the credit card statement. The process of credit card reconciliation may be integrated into the software you use for accounting, as it is in QuickBooks; however, it is also possible that you will need an additional tool like accounting automation software to assist you with this process.
- To begin, check that the interest charges associated with credit cards are also recorded in the general ledger.
- Next, most people find it easiest to match the total amounts of payments and other credits on the statement to those in the general ledger. This step is referred to as "balancing" the statement.
- If they do not match, you will need to conduct further research.
- The last thing you need to do is compare the purchases listed on the statement to those recorded in the general ledger.
Depending on how credit card purchases are entered into your system, this step may include verification of the purchases that have been appropriately assigned to the appropriate chart of accounts.
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How do I do a credit card reconciliation in Excel?
Excel is an excellent software for the personal credit card reconciliation process. Let’s look at how to do credit card reconciliation in Excel.
- Download your credit card statements for the period you wish to reconcile. You can download it as an excel. If you’ve downloaded it as PDF, you can convert it into a CSV using the PDF to CSV tool.
- Use a reconciliation template and open it on your Excel.
- Paste all your entries from credit card statements in one sheet and add the cash book entries on the same sheet beside the earlier table.
- Add comments on the transactions that match.
- Find the transactions which don’t match and add a comment to find the reason for the mismatch or extra entries.
- Review all the transactions and save the reconciliation for future reference.
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How to automate credit card reconciliation?
Credit card reconciliation can be a time-consuming and tedious task, especially if you have multiple credit cards to reconcile. However, there are ways to automate the process and make it much easier.
Automate conversion of PDF documents to CSV
Match Credit Card Transactions & Cash Books
With advanced document matching, match all the amounts from both documents using automated workflows. Let us help you set up your workflows in minutes.
Set up workflows to flag entries that don’t match
Send incorrect or flagged transactions to stakeholders right away via email, slack, or SMS. Send real-time notifications to all the stakeholders and keep everyone informed.
Integrate with all your accounting & ERP software
Keep all the records updated across different accounting & ERP software like QuickBooks, FreshBooks, Sage, NetSuite, etc. Do you want us to integrate with your ERP software? Give us a call or check our integrations.
Why use Nanonets for credit card reconciliation?
Nanonets is an AI-based accounting automation software that leverages powerful OCR software, no-code workflows, and out-of-the-box integrations to simplify your accounting processes.
Nanonets can fast-track your financial close processes with
- Automated multi-transaction matching to match amounts across multiple documents
- Automated data entry into accounting systems after transaction matching
- Automated approval workflows for flagged entries and resolution
- Role-based access for better security and control.
Apart from this, Nanonets provide
- 14-day free trial
- 24x7 customer service
- Free migration assistance
- A dedicated customer success team
- Extensive training support
- >95% OCR accuracy
- Flexible workflow automation
- Flexible hosting options - cloud and on-premise
- SOC2 and GDPR certified secure platform
So, if you’re looking to automate any part of the reconciliation process, get a free demo with our automation experts.
Tips for credit card reconciliation
Keep accurate records: This is the first and most important step in reconciliation. Make sure that all transactions are recorded accurately in both sets of records.
Compare records: Carefully compare the two sets of records to identify any discrepancies.
Resolve discrepancies: Once any discrepancies have been identified, it is important to resolve them. This may involve contacting the other party to clarify the transaction or adjusting the records.
Reconcile regularly: It is best to reconcile accounts regularly, such as monthly or quarterly. This will help to ensure that the records are kept up-to-date and accurate.
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Reconciliation is the process of ensuring that two sets of records are in agreement. The most common type of reconciliation is bank reconciliation, which is the process of matching a company's bank statement with its internal records. Reconciliations can also be performed between two sets of financial statements or between physical inventory and accounting records.
This is a helpful process because it helps to prevent errors and fraud and ensures that the records are accurate. It is essential to reconcile accounts regularly, such as monthly or quarterly. This will help to ensure that the records are kept up-to-date and accurate.
Complete your reconciliation processes in minutes instead of days. Automate reconciliation processes with intelligent matching, document processing, advanced workflows, and global payments. Get a free demo with our automation experts.
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FAQ on Credit Card Reconciliation
What is reconciliation with an example?
Reconciliation ensures that two sets of records (usually the balances of two accounts) are in agreement. Reconciliation ensures that all transactions have been accounted for and correctly recorded.
For example, a company might reconcile its bank statements with its internal credit card sales records to ensure that all transactions have been accounted for. Alternatively, individuals might reconcile their checkbooks with their bank's records to ensure that all transactions have been accounted for.
Reconciliation is important because it helps to ensure the accuracy of financial records. Without reconciliation, it would be not easy to know if all transactions had been accounted for and recorded correctly.
What are the three types of reconciliation?
There are three main types of reconciliation: credit card reconciliation, bank reconciliation, and accounts receivable reconciliation.
Credit card reconciliation is the process of matching credit card charges with credit card receipts to ensure that all transactions have been accounted for. This is important because it helps to prevent fraud and ensure that the credit card bill is accurate.
Bank reconciliation pairs bank statements with internal records to ensure that all transactions have been accounted for. This is important because it helps prevent errors and ensures that the bank statement is accurate.
Accounts receivable matches invoices with payments to ensure that all transactions have been accounted for. Again, this is critical because it thwarts errors and ascertains that the accounts receivable are correct.
How do I reconcile my credit card bill?
To reconcile your credit card bill, you must match your credit card charges with your credit card receipts. This is important because it helps to prevent fraud and ensure that the credit card bill is accurate. There are many different ways to reconcile accounts. The most important thing is to ensure that all transactions are accounted for and that the two sets of records agree. What is the reconciliation process?
The reconciliation process is a three-step process that requires you to compare your credit card statement with the transactions on your bank's statement.
First, you should check your credit card statement to ensure all of the charges were made or approved by you. If anything looks suspicious or incorrect, contact your bank immediately.
Next, if any charges have been removed from your credit card statement (or added), then note them on the bank's statement and mark them as reconciled.
Finally, compare the total amount listed on both statements and make sure they match up (if not, call your bank again).
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