For many small businesses, expense reconciliation feels like a necessary evil. At the end of every month, someone on the finance team is stuck sifting through spreadsheets, matching receipts to transactions, and chasing down missing details, often long after the purchase was made. It’s a slow, manual process that eats up valuable time and leaves plenty of room for errors.
What should be a simple check to confirm money was spent correctly turns into a frustrating paper trail of emails, sticky notes, and guesswork. And when reconciliation is delayed or inaccurate, it throws off your reporting, taxes, and peace of mind.
With the right automated process, expense reconciliation becomes almost effortless. Instead of matching receipts by hand and tracking down missing info, transactions are categorized automatically, receipts and memos are collected in real time, and everything flows into your accounting system with minimal manual work. It saves time, reduces errors, and gives you a clear, up-to-date view of your business’s finances.
In this article, we discuss some of the essential steps in an expense reconciliation system, common pitfalls to watch out for, and some of the best practices that can help everything run smoothly.
Key Takeaways
- Takeaway #1: Expense reconciliation is the process of comparing and matching expense reports submitted by employees with the actual transactions recorded in your accounting system. It serves as a way to double-check employee spending and ensures that all expenses are accounted for, accurate, and legitimate.
- Takeaway #2: To conduct an expense reconciliation, gather necessary financial documents, match expenses to receipts, identify and resolve any discrepancies, and balance all accounts.
- Takeaway #3: Common pitfalls include data entry mistakes, inconsistent documentation, compliance issues, and scalability concerns.
- Takeaway #4: You can avoid any issues by adhering to a few best practices, including creating a comprehensive expense policy, training employees on how everything works, using automation to your advantage, and integrating expense reconciliation and accounting software.
What Is Expense Reconciliation?
Expense reconciliation is the process of comparing financial records like receipts, credit card statements, and employee expense reports with business accounting records.
The purpose of the process is to ensure that all transactions are correct and properly documented and to help your business maintain accurate financial records.
Expense Reconciliation Process
1) Gather Necessary Financial Documents
The first step in the expense reconciliation process is to gather all necessary financial documents.
This includes things like:
- Expense reports
- Credit card and bank statements
- Receipts
- Invoices
Many businesses now use software and mobile apps that allow employees to scan/photograph, upload, and store related documents in real time for easy recordkeeping.
2) Match Expenses To Receipts
When you have all the necessary financial documents in hand, the next step is to match each expense in your accounting system to its corresponding proof of purchase.
Depending on your accounting procedures, this typically involves verifying a few key pieces of information, including the date, vendor, description, and amount spent.
The data in your accounting software should match what’s indicated on the receipts. If it doesn’t, there may be an error somewhere.
3) Identify Discrepancies
When information doesn’t match, flag these discrepancies for further investigation. Discrepancies might include things like:
- Incorrect vendor name or purchase date
- Mismatched amounts
- Missing receipts or duplicate entries
- Expenses that don’t comply with company policy
Automation can be particularly helpful at this stage of the process. Software uses algorithms to quickly identify even the smallest inconsistency that might get missed in a manual process.
4) Resolve Issues And Balance Accounts
Once you’ve gone through all the entries and flagged the discrepancies, go back and resolve the issues so that the records and your accounts balance.
Resolving issues may involve talking to employees for more information, contacting financial institutions and/or vendors, adjusting mistakes in the accounting system, and even investigating fraudulent activity.
Once everything has been resolved, the expense reconciliation process is complete.
Common Pitfalls Of Expense Reconciliation
For small businesses, expense reconciliation is often a manual, messy process that slows down operations and introduces risk. Without the right systems in place, it’s easy to get overwhelmed.
Time-Consuming and Manual
Traditional reconciliation involves combing through bank statements, expense reports, and paper receipts, often days or weeks after the purchases were made. This manual process eats up hours every month and pulls the finance team away from more strategic work. The more employees and transactions you have, the worse the time drain becomes.
Missing or Incomplete Information
Late receipts, vague purchase descriptions, and incomplete memos are the bane of expense reconciliation. When employees forget to document purchases or lose receipts, it forces admins to chase down details or make guesses, which increases the risk of mistakes. These gaps can lead to inaccurate reporting, compliance issues, or missed deductions at tax time.
Lack of Visibility and Control
Without real-time tracking, businesses often don’t know what’s been spent until after the fact. That delay can lead to surprise overages, duplicated expenses, or unauthorized purchases slipping through the cracks. A lack of visibility also makes it harder to spot patterns of misuse or areas where spending could be optimized.
Expense Reconciliation Best Practices
Create A Comprehensive Expense Policy
A comprehensive expense policy should include everything your employees need to know about how, where, and when they can make purchases for your business.
It should also include an exhaustive list of all necessary documentation and the process for submitting said documentation to the proper authorities for approval and reimbursement.
Train Employees
An efficient expense reconciliation system starts with training your employees to comply with your business’s policies. Take the time to teach team members how to operate within your business’s expense policy.
Training your employees now can help you save time and effort when it comes time to conduct an expense reconciliation.
Use Automation To Your Advantage
When it comes to tracking, managing, and controlling expenses, automation can be a game-changer.
A robust spend-management platform gives you access to things like:
- Transaction notification
- Automated expense approval
- Policy enforcement
- Automated receipt capture
In some cases, you can even take advantage of automatic expense categorization, real-time reporting, double-entry alerts, and reminders for you and your employees.
Integrate Expense Reconciliation And Accounting Software
With the right software, you can transfer expense reconciliation information directly into accounting software such as QuickBooks.
Integrating two pieces of software like this can all but eliminate the need to transfer data manually and reduce the number of potential errors that can drag down your accounting activities.
Speed Up Your Expense Reconciliation With Coast
With the help of an advanced spend management platform, Coast gives you access to expense reconciliation automation and integration that makes it incredibly easy to track expenses, enforce spending rules, and automate reporting.
But Coast does much more than make expense reconciliation simple.
All Coast smart credit cards come with tools that help you:
- Digitize your expense policy, with built-in card controls
- Automate receipt and job code capture
- Monitor expenses in real time
- Automate transaction coding and categorization with smart rules
- Sync with your accounting software
To learn more about how Coast can benefit your businesses, visit CoastPay.com today.
Frequently Asked Questions
Are there different types of expense reconciliation?
In its broadest sense, expense reconciliation is the process of comparing and matching expense reports submitted by employees with the actual transactions recorded in your business’s accounting system.
That means you may have to conduct a credit card reconciliation, a cash advance reconciliation, and/or a T&E reconciliation. It all depends on how your employees make purchases and how your accounting system is set up.
For a more streamlined system, consider issuing qualified employees a corporate card with advanced spending controls, like Coast. That way, all purchases are charged to the same place, and you only have to conduct one expense reconciliation every month.
Are there any accounting guidelines I should follow for expense reconciliation?
It’s entirely up to your business how to conduct expense reconciliations, but there are some suggested rules to follow that can make the process easier both right now and down the road.
For businesses of all types and sizes, a good place to start when managing accounting standards is the Generally Accepted Accounting Principles (GAAP) and/or the International Financial Reporting Standards (IFRS).
Your business can choose to abide by one standard, a combination of the standards, or neither of the standards altogether.
Regardless of what you choose, make sure your accounting practices keep track of all your income and expenses so that your business is prepared once tax time rolls around.
How often should I conduct an expense reconciliation?
Conduct an expense reconciliation at least once a month. Doing so can help your business keep better control of spending, identify fraud and theft as soon as possible, and maintain an efficient accounting process.
For businesses with a high volume of credit card transactions, it may be more efficient to reconcile the account weekly or every two weeks in order to stay ahead of the curve.
Regardless, the goal is to reconcile the account — be it a credit card account, a bank account, or even petty cash — as often as necessary to keep the process from becoming overwhelming and losing control of spending.
