Query regarding reconciliation

[Maf. King]

On Tuesday 06 July 2010 11:28:47 Ankur Sinha wrote:

> Since I'm doing all this, and entering it all everyday, aren't the
> accounts already reconciled?? That's where I was confused. When I update
> my GNUCash data, I put down everything into it (and check my wallet etc.
> to see if things match up, they generally do). What use is
> reconciliation? Does it come handy when I forget something? Or am I just
> basically reconciling *every night* (without knowing it and using the
> GNUCash reconcile option)? :)
>

Hi,

From http://www.merriam-webster.com/dictionary/reconcile
<SNIP>
Main Entry: rec·on·cile
...
1 a : to restore to friendship or harmony <reconciled the factions> b : 
settle, resolve <reconcile differences>
2 : to make consistent or congruous <reconcile an ideal with reality>
3 : to cause to submit to or accept something unpleasant <was reconciled to 
hardship>
4 a : to check (a financial account) against another for accuracy b : to 
account for
<SNAP>

The point of reconciling your accounts is to make sure that you and some other 
organisation (your bank, credit card Co., possibly even Spouse/Partner if you 
have transfers between joint accounts) agree at some point in time about what 
transactions have taken place (think about definitions 1a and 2 here, not the 
GC "reconcile process", which is definition 4).  

The bank produce a list of transactions they know about (a statement), and 
send it to you.  You compare this list with one of your own (a GC account) 
and check off the items you agree about.  If you started at the same account 
balance, and agree about all the items on the list, you will have 
a "reconciled account" - within GC, the reconcile window will show 
a "difference" of 0.00, and allow you to save the changes.

However, most likely, you will have things like un-cleared cheques which 
appear on your list, but not the bank's list, it could even be that the bank 
have allowed a transaction to happen twice (it happened to me once) - you 
will be alerted to those differences only *when*you*reconcile*.  (You then 
get the pleasure of persuading your bank that they have made a mistake.... 
but that is OT for this list!)

The GC reconcile process and dialogue boxes are just a tool - you could just 
put a check mark on the paper bank statements when you are happy that they 
are correct, and never mark a txn in GC, but the tool helps ease the process 
and flag up errors. (well, hopefully, at least!)

If you were sent statements regularly from eg. WallMart, you could reconcile 
your expense:groceries account.  But I imagine that you don't get many of 
those!

The point is that you can't really reconcile (using the GC reconcile dialogue) 
a cash-in-[hand|wallet|mattress] account, as there isn't another party to 
(dis)agree with (or send you a statement).  In essence, by counting the 
money, comparing with a GC account and adding a balancing txn you *are* 
reconciling, but at a "current balance" level rather than a "list of 
transactions" level - if that makes sense.   


HTH,
Maf.