Keeping your financial records accurate is fundamental to understanding your business's health, making strategic decisions, and meeting your obligations. The core of this process is reconciliation, where you categorize every transaction from your bank and credit card statements and match them to your accounting records. A consistent reconciliation habit is essential for tax compliance, reporting, and applying for loans. This guide explains this crucial concept and walks you through Dappr's tools for making reconciliation simple and accurate.
While some accounting terms may seem complex, Dappr is designed to handle the technical details for you. Our platform automates the complex work, translating your simple inputs into professionally structured financial records. This article will explain what’s happening behind the scenes in simple terms, so you can feel confident that your books are always correct, even without a background in finance.
Understanding reconciliation
At its heart, reconciliation is the process of comparing two sets of records to ensure they are in perfect agreement. In accounting, this means matching the list of transactions provided by your bank (your statement transactions) with the transactions recorded in your business's books (your accounting transactions).
Think of your bank statement as an objective, external record of every dollar that has moved in or out of your account. It tells you what happened. Your accounting records, on the other hand, explain the business reason for each of those movements. A bank statement might show a charge of $150, but your accounting records will clarify that this was for a software subscription, making it a business expense.
When a transaction appears on your bank statement but has not yet been explained in your books, it is considered "unreconciled." The goal of the reconciliation process is to review each of these statement transactions and create a corresponding, categorized accounting transaction, ensuring there are no unexplained gaps between the two sets of records.
The reconciliation workflow
To begin reconciling, you will navigate to the main list of your financial accounts. This is a task you should perform regularly, such as weekly or monthly, to keep your books current.
From the main menu, go to Accounting, then select the Bookkeeping tab.
On the Bank and cash page, find the account you want to reconcile.
If there are transactions awaiting review, you will see a blue button that says Review [#] items. This button is your call to action, indicating the number of unreconciled statement transactions that need your attention. Click it to begin. If the button is white and says "View transactions," it means your books are fully up-to-date for that account, and there is nothing to reconcile.
Clicking the review button opens the reconciliation screen. Dappr offers two modes for this process: Basic view and Advanced view.
Using the Basic view
The Basic view is the default for new users and guides you through categorizing transactions one by one in a focused interface. For each statement transaction, you will provide details to create the corresponding accounting transaction.
Documentation: You can upload a receipt, invoice, or other relevant file. This is highly recommended as it provides a clear audit trail and is essential for substantiating tax-deductible expenses.
Who/From: Enter the name of the person or company involved. Dappr uses this to build a contact list, allowing you to track spending per vendor or revenue per client over time.
What (Account): This is the most important step. You will select an account from your Chart of Accounts. The Chart of Accounts is the complete, structured list of all financial categories for your business (e.g., assets, liabilities, income, expenses). When you categorize a transaction, you are assigning it to the correct category, such as "Software Subscriptions," "Office Supplies," or "Sales." The choice you make here directly impacts the accuracy of your financial reports, like the Profit & Loss statement.
Description & Notes: Add an optional description for clarity and internal notes for your records.
Once you have entered the necessary information, click the Mark reviewed & continue button to save the accounting transaction and move to the next item.
Splitting a transaction
Sometimes, a single purchase includes items that belong in different expense categories. To do this, select Yes, multiple line items. This allows you to "split" the transaction and assign parts of it to different accounts.
Example: You make a purchase at a big-box store for $1,200. The purchase includes a new computer for $1,000 (a business asset), software for $150 (an expense), and a personal item for $50 (an owner's draw). You would split this transaction into three lines:
$1,000 categorized to "Office Equipment" (an asset account).
$150 categorized to "Software Subscriptions" (an expense account).
$50 categorized to "Owner's Draw" (an equity account, reflecting money taken out for personal use).
Splitting transactions is crucial for accurate financial reporting and tax preparation.
Using the Advanced view
The Advanced view is designed for experienced users, bookkeepers, or founders who need to process a large volume of transactions quickly. You can switch to this mode by clicking the Advanced view button in the top-right corner. This view presents your statement transactions in a spreadsheet-like list, allowing you to tab through fields and categorize many items efficiently. When you have categorized all the transactions on the page, click Finalize review to create all the corresponding accounting transactions at once.
Behind the scenes: Journal entries
When you categorize a transaction in Dappr Accounting, the platform automatically generates a journal entry in your books. A journal entry is the formal record of a transaction under the double-entry bookkeeping system. This system is the global standard for accounting and is built on a simple idea: every transaction has two equal and opposite effects. This ensures your books are always in balance. These effects are recorded as debits and credits.
A debit is an entry that increases an asset or expense account, or decreases a liability or equity account.
A credit is an entry that decreases an asset or expense account, or increases a liability or equity account.
For every journal entry, the total debits must equal the total credits. Dappr Accounting's reconciliation tool handles this automatically.
Example: You receive a $5,000 payment from a client. When you reconcile this, Dappr creates a journal entry that:
Debits your "Dappr Financial Account" for $5,000 (your cash asset increases).
Credits your "Sales" account for $5,000 (your income increases).
Correcting a mistake
It is common to make mistakes during reconciliation, such as choosing the wrong expense category or forgetting to split a transaction. Dappr provides a safe and simple way to undo these errors without compromising your data integrity.
The Remove & redo function allows you to delete an incorrect accounting transaction and return the original statement transaction to the review queue, as if it had never been touched.
Here is the step-by-step process:
Locate the Transaction: From the Bank and cash page, click on the account that contains the error. This will take you to the account's dedicated page.
View Accounting Transactions: Make sure you are on the Accounting Transactions tab. Here you will see a list of all the transactions you have created. Find the one that was categorized incorrectly. Its status will be marked as "Reconciled."
Open the Journal Entry: Click anywhere on the row for the incorrect transaction. This will open a detailed view showing the journal entry that Dappr created, including the debits and credits.
Remove & Redo: In the top-right corner of the journal entry view, click the three-dot actions menu. Select Remove & redo from the dropdown list and confirm in the popup.
The moment you confirm, Dappr does two things: it permanently deletes the incorrect journal entry from your books, and it changes the status of the original statement transaction back to "unreconciled." The item will reappear in your "Review items" queue, ready for you to categorize correctly. This process ensures that no transaction is ever lost; you are simply resetting it to its original state.
Handling of transfers between accounts
A common point of confusion is a transfer between two of your own accounts (e.g., paying a credit card bill from your Dappr Financial Account). This single event creates two statement transactions: money out of one account and money into the other.