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
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