Clearing account reconciliation frequency

How often should you reconcile your clearing or balance accounts in your accounting system

Clearing accounts (also known as balance accounts) are temporary accounts used to record transactions that are eventually transferred to their proper accounts. For example, a Shopify balance account holds your Shopify balance pending it being deposited to your bank account.

To ensure the accuracy of your financial records, it is important to reconcile your clearing accounts on a regular basis.

The frequency of reconciliation depends on the volume of transactions processed through the clearing accounts. In general, it is recommended to reconcile clearing or balance accounts at least once a month. However, if you have a high volume of transactions, it may be necessary to reconcile more frequently, such as weekly or even daily.

Regular reconciliation of clearing accounts can help to identify errors and discrepancies in your accounting system, such as missing or duplicate transactions. By resolving these issues promptly, you can improve the accuracy of your financial reports and make better-informed decisions based on your company's financial data.

As a general rule, if you reconcile monthly, you can rely on the following general formula:

opening balance

(+) any increases due to money in or sales completed

(-) any refunds or fees

(-) transfers out e.g. to your bank account

(=) the ending balance

This ending balance should match the month end balance in the source system such as Stripe.

What can go wrong if clearing accounts are not reconciled at least monthly:

If you do not reconcile your clearing accounts at least monthly in your accounting system, several issues may arise:

Inaccurate financial statements: Clearing accounts are used to temporarily hold transactions until they can be allocated to the appropriate accounts. If these accounts are not reconciled regularly, errors and discrepancies may go unnoticed, leading to inaccurate financial statements.
Missed transactions: If you do not reconcile your clearing accounts, you may miss transactions that were not properly allocated to the appropriate accounts. This can result in incomplete financial records and potentially lead to errors in your tax reporting.
Fraud and theft: Failure to reconcile your clearing accounts regularly can make it easier for fraudulent transactions to go undetected. Without proper oversight and monitoring, someone may be able to manipulate or steal funds from your company.
Compliance issues: Many regulatory agencies require businesses to maintain accurate financial records. If you fail to reconcile your clearing accounts, you may be at risk of violating compliance standards and facing penalties or legal action.
Time-consuming investigations: If you do not reconcile your clearing accounts regularly, it can be difficult and time-consuming to identify and correct errors or discrepancies. This can take valuable time away from running your business and cause unnecessary stress and frustration.

In summary, regularly reconciling your clearing or balance accounts is essential for maintaining accurate financial records, detecting fraud and errors, and ensuring compliance with regulatory standards.