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What does reconciliation of expenses mean?

Reconciliation of expenses refers to the process of making sure that all your financial records are accurate and add up. It involves cross-referencing all your financial records, such as receipts, invoices, bank statements, and expense reports, to ensure that all your business’s expenses are correctly categorized, recorded, and reconciled. Simply put, expense reconciliation is a way to make sure your bank statements match your internal financial records.

This process helps identify discrepancies in your company’s financial records that could result from fraud, mismanagement, or simply human error.

The next sections of this article will dive deep into the types of expense reconciliation, how to reconcile expense reports, and how software can speed up the process.

What are the types of reconciliations?

There are several types of reconciliations, but generally, they fall into two major categories—business and individual. For this article, though, we’ll be talking about business reconciliation, and under this category, there exist the following types:

  • Bank reconciliation: This reconciliation involves matching your company’s financial statements with your bank statements to make sure they align.
  • Vendor reconciliation: Vendor reconciliation confirms that your accounts payable (what you owe to suppliers) match up with your records.
  • Customer reconciliation: Also known as accounts receivable reconciliation, this type of reconciliation checks that the amounts your customers owe you match your accounts receivable records. This is essential if your business supplies goods or services to its customers on credit because it helps track outstanding invoices and collect payments.
  • Business-specific reconciliation: This type can encompass different types of reconciliations specific to your industry or business needs. It may include inventory reconciliation, payroll reconciliation, or other custom-tailored reconciliations that suit your unique requirements.

Is expense reconciliation easy?

Expense reconciliation is easier if you have systems in place to streamline the process, like automated expense reporting and consolidated data. Some issues that can complicate the process include:

  • Missing receipts: Often, employees lose or forget to submit receipts with their expense reports. This then creates gaps in your financial records and complicates the expense reimbursement and reconciliation process.
  • Multiple data sources: Expense data can come from various sources, such as credit card statements, bank account statements, email submissions, paper receipts, and online expense management tools. Each source may have its own format and data structure, making it challenging to collate and consolidate this data.
  • Poor data formatting: If your company doesn’t have a standardized way for its employees to record expenses, you’ll have expense reports that are all over the place. This inconsistency can lead to errors in the reconciliation process and hinder the ability to analyze expenses accurately, as the accounting team will have to clean and standardize the data.
  • Delays in transaction entries: This challenge can be due to various factors, such as busy workloads, incomplete information, or a lack of automation in data entry. Delays in entering transactions can result in outdated financial records, affecting decision-making and financial planning.

How do you reconcile expenses?

You can reconcile business expenses using several methods that fall into two broad categories—manual and automated.  

Manual reconciliation

This method is the traditional mode of reconciliation, where finance teams manually reconcile costs, finances, and records. With this accounting system, you can use paper records (where you record financial information in books) or spreadsheets (where you use Microsoft Excel or Google Sheets to reconcile expenses). Whichever you choose to use, manual reconciliation is usually time-consuming and requires a lot of effort because it involves multiple steps:

  • Collecting all relevant financial documents, including receipts, invoices, bank statements, and expense reports
  • Sorting and organizing the documentation by date, category, or other criteria to facilitate the reconciliation process
  • Manually entering each transaction into a reconciliation spreadsheet or general ledger
  • Comparing the manually entered transactions with financial records to ensure details (date, description, amount) match and highlighting any discrepancies or missing transactions
  • Addressing discrepancies by contacting employees or vendors responsible for expenditures and resolving any issues
  • Making necessary adjustments to financial records to accurately reflect the reconciled expenses and updating the ledgers as needed
  • Creating a reconciliation statement summarizing the process and documenting adjustments made

Automated reconciliation

With technology, you can easily reconcile expenses by automating the steps involved in the process. Automated reconciliation may involve using one or several software to automate the different stages of reconciliation, but the most common tool used is expense management software.

Expense management software works by allowing employees to input expenses electronically. This software often includes features such as receipt capture, automated data entry, and real-time tracking, which reduces the chances of errors and missed receipts.

As to which method you should use for reconciling expenses will depend on several factors. At first, when your business is still small in its startup stage, you’ll find that manual methods like spreadsheets are sufficient for expense reconciliation. However, as your organization grows and the volume of transactions increases, you’ll need to switch to automated reconciliation.

Using software for expense reconciliation

The expense reconciliation process shouldn’t take up all of your finance team’s time and effort. The more time they spend chasing receipts, manually recording expenses, and matching bank statements, the more your business spends on reconciliation costs and experiences losses in other areas. Automated expense management software can make a huge difference on this front.

Expense management software offers several benefits, including:

  • Digitization: Expense management software often includes mobile apps that allow employees to capture receipts using their smartphones. This digitizes paper receipts and makes them easily accessible for reconciliation. Some even import electronic receipts from emails or other digital sources, reducing manual data entry.
  • Automation: The software can automatically categorize expenses based on predefined rules, simplifying your workflow. Automation also helps identify and flag double entries to prevent overpayment.
  • Data Integration: Expense management platforms can seamlessly integrate with popular accounting software, letting you easily add expense data to your balance sheet and other bookkeeping documents.

Speed up your expense reconciliation with Ramp

Expense reconciliation is time-consuming and often challenging for businesses, especially if done manually. Ramp’s expense management platform can help simplify the process.

Here’s how we can help:

  • Ramp automates expense reporting with features like receipt automation, global reimbursements, and AI-powered reconciliation, so you don’t have to sift through stacks of receipts and manually enter data.
  • Your team can submit expenses on the fly by simply sending a picture of their receipt via SMS or the Ramp mobile app.
  • Ramp’s AI-generated categories and memos provide complete details for every transaction, and it even detects duplicate receipts.
  • The software auto-collects and matches receipts in minutes, thanks to integrations with popular platforms like Gmail, Uber, Amazon Business, and Lyft.

Try Ramp and make your operating expense reconciliation pain-free.

Finance Writer and Editor, Ramp

Ali Mercieca is a Finance Writer and Content Editor at Ramp. Prior to Ramp, she worked with Robinhood on the editorial strategy for their financial literacy articles and with Nearside, an online banking platform, overseeing their banking and finance blog. Ali holds a B.A. in Psychology and Philosophy from York University and can be found writing about editorial content strategy and SEO on her Substack.

Ramp is dedicated to helping businesses of all sizes make informed decisions. We adhere to strict editorial guidelines to ensure that our content meets and maintains our high standards.

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