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Step 8: How to Reconcile your Books/ Accounts

Reconciliation of books or auditing of books is not limited to only for chartered accountants or auditors. These are for investors also so if you are investor, you should know how to reconcile your books or your accounts and how to do monthly audit to ensure no fraud is happening at least to your money. So, lets learn auditing from auditor in this step number 8 named reconcile books and which means your trading account, bank account and your demat account. So, let’s start.

Hello friends, my name is CA Arun Tiwari and you are welcome to my article on Mark to market website and we are going through series named F&O Shots and we are at step number 8 and after that there will be 2 more steps and these steps will help you to start your F & O journey and hedging journey and with the help of hedging, you can simply earn slightly better return then just investing in long term stocks. So, today we will learn how to cross check, how to reconcile and in other terms, how to audit your bank account, your trading account and your demat account. So, generally, these are 3 accounts in which your money & stocks keep moving here and there.

Question 1 Why reconciliation is required?

Sol: That is a broker who has a system and everything is fine then why there is a need of reconciling of books required. So, friends, let me tell you that brokers are not angels. So, Here we are learning about money, your money and big money and its not only your money. Its about thousand of investors of money so somebody may become greedy and that can be something wrong. We cannot stop but we can be slightly alert towards our money, the requirement of audit is there.

Now, when you should do? In my opinion, you should do monthly reconciliation. If you, do it on yearly basis, let me tell you it will not be successful because the data will be so huge you could not be going through but monthly it will be easy, so on any one of the Sunday from 1st to 10th you can reconcile your data from past month so like just now the august month has passed so we are in September, you can do on any Sunday, you can do the reconciliation of your transaction. Now initially it will take 2 to 3 hours but then it will take only 1 hour or just half an hour once you know, how to do it. So, that’s 1st thing.

2nd important thing, in past, we have already seen that brokers have misused the money and misuse the stock in the case of Karvi. So, it has already happened so that is why you have to be very careful and the only way is to audit your books on regular basis and apart from that if you are doing F&O also then you should always check your margin statement also. So, this will be additional thing.

Question 2: What to audit or what to check?

Sol: Basically, you have to check 3 things. Firstly, in your banker money, you have to check when the money is out and when the money is in, so generally you put your money from your bank account which went to your trade account and after trading account when you buy stocks, stocks went to your demat account. Same way, when you sold your stocks from your trading account, your stocks deducted from your demat account and money enter your bank account so all are linked. So, you have to check it in this way. If the money is out that means there should be in 1st in trading account and after 3 days, in your demat account so that is you have to check. This is all about base portfolio. Same way when you will sell the shares in your trading account, the shares will be out from your demat account and the money will be in your bank account. So, this way, you have to check all 3 accounts.

Second important part is your margin statement which I’ll show you the process, When you heard the term margin blocked or margin unblocked, it is also called margin reversed and then you also have to check the net settlement and this we will learn in this article itself. So these are the things you have to check out.

Question 3 How we have to do that?

Sol: So, for that you have to start with bank statement so download your bank statement and filter all the payment which are going to your demat account and all the payment which came to your bank account from your trading account. So, when you download your bank statement, you have to mark all the payment which are going in and going out. If the money is deducted in your bank account that means the same should be transferred to your trading account and the same you can check it with your fund statement. In fund statement, you can check with date. Date generally is going to be last month. For example: On 19th Aug, 2021, Rs.5000 is deducted from your bank account and then you can cross verify on the same day, it should be credited to your trading account. The stock should be credited in your account on 3 plus 2 basis that means if you buy stock on Monday then it will be deducted after 2 days and the same way if you sell the share the same will be deducted from your demat account after 2 days. So, when you sell something or buy something, you will get the deduction or addition in your bank account.

So always you have to check what is debited in your trading account, the next day it should be reversed in F & O for margin. This you have to check on daily basis and then you have to check your net obligation which should be after the charges. You will get this from zerodha and from there you have to reports and downloads there you can see the contract notes of any day. They will send the same on email from which you can download it.

You have to check on every transaction there will be brokerage which the broker will charge and along with brokerage, there will be GST also. You have to verify the calculation of brokerage and its GST. Same way you can match with every transaction. So this way friends, every months you have to do the auditing or reconciliation of books of accounts and if you keep doing this, nothing bad will happen to you. Nobody will cheat you, nobody will play with your account vehicle. I have experienced brokers, they know that the retail investors are very serious about their investment. This process can be done be all professionals even for some big companies, there are chartered accountant who do reconciliation on every month basis. Also, you cannot hire a CA, even a CA cannot hire CA as you can do with yourself. It will take some time initially but after that it become easy and if you found some issues, immediately revert to your broker and then broker will clear all your doubts.

I have seen sometimes that broker charge unnecessary charges, sometimes they credit your money which should be going to your bank account. So, this is all friends about the reconciliation of investment account, your bank account, your books. Hope you have learned something new and if you want to become professional, Let me tell you, professionalism pays in long term. In next article, we will learn about the taxation in investment and how we can do the tax planning within the legal meaning and save tax from our profit and how you can plan your tax specially from long term. So that will be our next article and our last article will be based on hedge and edge strategy which you can simply ready set and go.

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