[GNC] The "purpose of reconciliation" [was: Re: Reconciling PayPal]

[Jim DeLaHunt]

On 2022-12-14 02:58, Dr. David Kirkby wrote:

> My understanding is that the purpose of the reconciliation is to enable one
> to compare that the balances of two sets of accounts are in agreement....

Interesting. I have slightly different purpose when I do reconciliation: 
to compare the _transactions_ of the two sets of accounts, and confirm 
they are in agreement.

The benefit of reconciling _transactions_ and _balances_ is because the 
transactions will flow through my records and the bank's account in 
different orders, on different days. If the flow of transactions pauses, 
there will be time for them to settle in the bank's account and for the 
balances to come into agreement. But if the flow of transactions is 
non-stop, the balances may never agree. The one exception: at the moment 
the account is created, both my records and the bank's account agree 
that the balance is zero.

> ...The most obvious example being that the amount of money that your bank
> says you have agrees with one's own records....
If I combine the list of transactions in agreement with compatible, but 
not necessarily identical, starting balances in each of the accounts, 
then I have confidence that the bank and I agree on how much value I 
will have stored with them, once the in-process transactions have settled.
> ... In order to do that one needs to know
> what the bank says your balance is on a particular date. In the case of
> reconciling the PayPal account, one would need to know what PayPal says the
> balance is...

Most of the time, the only date on which I care about what the bank says 
my balance is, is the statement ending date. And I don't care what my 
own book's balance for that account is on that date. I just care that 
each transaction the bank says occurred during that statement period 
matches exactly one transaction in my own books.

(Although, I will sometimes check what the bank says my balance is when 
I am letting the balance drop in the account, and I want to be sure that 
pending transactions will not overdraw the account.)

> ...One's PayPal balance can change, without one making any transactions. I
> sold something to an Indian academic, and got credited with £1000 or
> thereabouts. I withdrew the money to my bank account. He then claimed some
> parts were missing, so put in a claim, wanting extra parts. That made the
> balance negative, despite there had been no transaction.

Well, "one" (you) did not make a transaction, but PayPal did. They 
debited your account balance by £1000. This is conceptually the same as 
my bank charging me an overdraft fee when I bounce a cheque, or my 
credit card company charging interest on an unpaid balance, or my bank 
depositing an interest payment to my savings account. They are all 
transactions by the institution as a result of business activity which 
"one" (I) did not initiate.

I hope this is not getting too philosophical to be helpful.

Best regards,
      —Jim DeLaHunt