This article is part of a larger series on POS Systems.
POS reconciliation is the process of manually checking your POS sales records against your cash on hand and credit card processing statements to ensure there are no discrepancies. POS reconciliation can be done anytime, but more frequent audits ensure any disparities are identified and fixed right away. For most businesses, the best practice is often to audit cash and credit card transactions at the end of each business day.
As someone who spent several years managing day-to-day operations in a retail spa, I found POS reconciliation to be one of the more mundane regular tasks. However, it was essential for spotting cash mishandling and incorrectly entered credit card charges (in a spa, a mismatched credit card charge usually meant a tip for an employee was charged to the customer, but it was mistakenly not applied to the employee’s account—which is something you definitely want to fix!).
How POS Reconciliation Works
Performing POS reconciliation is easy enough, but it can be a mind-numbing task. It’s a lot of cross-referencing numbers from one screen to another (or printed statement to printed statement). It’s worth it, though, to ensure you know whether your transaction statements and actual sales are accurate.
1. Gather the Materials You’ll Need
You’ll need the day’s POS sales transactions (most POS systems can run an end-of-day register or Z report), credit card processing batch statements, cash drawer at the ready for counting, and receipts or logs from any cash deposits that were pulled from the register into the safe or bank throughout the day.
2. Compare Card Transactions to Statements & Note Discrepancies
Look through your POS’s detailed transaction lists for each sale or refund for the period you’re reconciling. Cross reference with your credit card batch statements and mark them if they match. If they don’t line up, make a note of it.
3. Compare Cash Transactions to Cash on Hand & Note Discrepancies
Add up all the cash sales for the day and compare the total to the actual cash you have in the registers. As I note in the best practices below, it’s good to start each day with the same amount of cash because it will be easier to reconcile cash transactions. Take notes on any discrepancies you see.
4. Correct Any Obvious and Reparable Errors
This is where a bit of detective work can come in. Not every discrepancy will have a clear reason or fix, but by noting transactions at the end of each day, you can eventually start to see patterns and know how to reconcile them.
Like I mentioned above, at the spa I worked at, a $20–$40 card charge not associated with a specific transaction (and therefore showing as a cash overage) was usually a tip that needed to be applied to an employee. So, by finding other transactions associated with that customer that day, we could see which employee performed their service and apply the tip.
Depending on your POS system, you may have the ability to adjust transactions until the end of the business day or when you officially close the register. In other words, the sooner you spot these trends or errors, the easier it is to reconcile them.
5. Create a Log for Each POS Reconciliation Session
Your bookkeeper or accountant will be eternally grateful if you keep an ongoing log of all reconciliation sessions. Be sure to note the date, any discrepancies, and the totals for credit card statements and cash sales.
6. Provide POS Reconciliations to Accountant or Tax Professional
Your accounting professional may request your logs regularly or when it’s time to handle taxes. Provide them when needed.
Benefits of Performing POS Reconciliation
One of the best features of a POS system is that it automatically produces analytics and reports to give you clear insight into your business’ health. They also include inventory tracking tools, employee management, and accounting features.
So why do the manual process of POS reconciliation? When you cross-reference each transaction with your POS logs, you’ll have a better understanding of your business needs, and you can prevent long-term accounting errors.
Here are six of the biggest benefits of POS reconciliation:
Alerts you to accounting errors
Keeping your books accurate is vital. Each time you compare your transactions and cash-on-hand with your POS reports, you’ll be able to identify discrepancies—and possibly find patterns, so you can stop the errors.
Secures cash deposits
You need to know how much cash you deposit every day. It’s difficult to know if a mistake has been made after you make that deposit at the end of the day.
Saves money in the long term
Inaccurate bookkeeping can be a costly mistake. Uber made a small accounting error when the company took its commission before taxes and fees—the result was Uber promising to refund the money, plus interest, which totaled about $50 million.
Keeps you informed of overall business health
Aside from simply catching errors and unauthorized transactions, regular reconciliation can give you a clearer picture of your business and how it’s performing. You’ll become familiar with hot-selling items and products that aren’t moving, and you’ll make better-informed decisions for your business.
Highlights employee performance
Similar to the above benefit of knowing your business’ overall health, POS reconciliation will help you see which of your employees are your top sellers. On the flip side, you’ll also be able to tell who’s making mistakes with cash or possibly identify thieves among your workforce.
Helps you track inventory
Of course, your POS system likely has built-in inventory tracking and management tools, or you have a third-party solution. Still, POS reconciliation gives you a better idea of what’s in your backroom, what you need to restock, and how fast certain items are selling.
POS Reconciliation Best Practices
If you haven’t been performing regular POS reconciliation, it’s OK. You’re committing to doing it now, and it’s important that you follow a few best practices for POS reconciliation. How often you perform POS reconciliation is up to you; most retailers do it every day if they’re running a high-volume business. These tips will help ensure your books are accurate and you’re not losing money.
- Use integrated credit card processing: When you use the best POS hardware, you should see few errors because they typically include integrated payment processing terminals. The less frequent employees have to do manually, the better the odds are of fewer errors.
- Limit one employee per register: If you designate one employee per register, it’ll be easier to identify issues when you do POS reconciliation. Alternatively, you can assign codes for each employee to use if you have more employees than registers. Set your POS to automatically ask for their code or login before each sale or transaction. This keeps everyone accountable.
- Have a manager conduct audits: As the owner, you could perform POS reconciliation, or you could assign the task to a manager, department head, or even your accountant.
- Open with the same amount of cash every day: Start each day with the same amount of cash to make it much easier to reconcile at the end of the day or shift.
- Be consistent: If you want to do daily POS reconciliation, don’t skip a day. You can also do it weekly, bimonthly, or monthly.
When you regularly compare your expected sales (those in your POS software) to the actual numbers from your credit card processing statements and cash drawers, you’re warding off potentially big accounting errors. You could spot patterns of theft or small discrepancies that, over time, could add up to significant losses.
Performing POS reconciliation may be one of the more mundane tasks of a retail business owner’s life, but it’s also rewarding. You’ll have better insight into your business’ health, who’s excelling or struggling with sales, what’s selling and what isn’t and, possibly, what’s slowly picking at your profits. By regularly absorbing all the transaction data, you’ll be able to make better-informed decisions for your business.
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