Accounting Reconciliation: Completing the Accounts
A company’s financial health can be seen briefly in its financial statements, so accounting reconciliation is a necessary step. They provide a general overview of a firm and provide information on its profitability, solvency, liquidity, and intercompany financial management. These signs, however, are only useful if the accounts are correctly reconciled.
The process of account reconciliation is essential to business. This is because it links accounting to bank statements, records to cash, and shields the company from inconsistencies.
However, few business owners are brave enough to perform a bank account reconciliation on their own. They have good grounds for feeling this way. Before the advent of computerized solutions for account reconciliation, reconciling generally involved comparing a large number of daily transactions with bank statements. Since paper records are quickly lost and frequently difficult to replace, it has always been nearly impossible to complete the account reconciliation procedure manually and in one sitting.
Account Reconciliation Is What?
Account reconciliation is a crucial accounting procedure. One that verifies the accuracy of the data by comparing financial records with an actual bank balance. Although it is a difficult procedure, it is essential to your company.
For any business, the reconciliation procedure is necessary. The frequency is the only thing that differs. Typically, you’ll need to reconcile the cash book with your bank statement more frequently. Monthly, weekly, or even daily the larger the organization. In contrast, smaller businesses might perform the reconciliation process every six months.
To make sure the general ledger account balance is comprehensive and accurate, the account reconciliation procedure is often carried out after the accounting period.
Reconciliations of checking accounts often require two pieces of data to match. The first one comes from the cash book that a business owner keeps. While the second one is created by a third party, such as a bank (bank statement). If you compare these two reports, there should be no variation between them. Indicating that they were both created on the same day and contain the same value.
Why Are Account Reconciliations Necessary?
The process of account reconciliation keeps your company’s finances and compliance with various regulatory standards on track. You must be aware of how much money you have left! Where it is going, and what you should do with it.
Account reconciliation is crucial. Since it enables you to confirm the accuracy of your financial information. You may need to change them if they aren’t. You’ll have the most recent and accurate information about the financial situation of your business in this method.
Additionally, routine bank account reconciliation will reduce the possibility of incurring fines or penalties that are typically preventable.
Some of the Account Reconciliation Challenges
Discrepancies are differences that are found during account reconciliation. The following is the definition of account reconciliation: the process of verifying that all transactions have been accounted for.
This could occur as a result of a human error. Or because the business adopted an incorrect set of accounting rules. Whatever the cause, if these account reconciliation inconsistencies go unnoticed, they could have a major negative impact on your company.
Since there is very little possibility that accounts will be properly reconciled in the real world, it is wiser to plan for any potential issues. The most frequent reasons for account reconciliation differences are listed below.
Once you’ve located a discrepancy between two accounts and recognized where it is, you may start investigating why it occurred. The general ledger may have recorded the transactions. But the bank hasn’t yet processed the check or vice versa. They are, in order of frequency:
- Unrecorded or in-transit deposits
- Outstanding checks
The bank reconciliation statement may contain omissions as a result of improper reconciliation. Which could have a significant impact on your accounting records. The transactions that appear on the bank statement but have not yet been entered by the company into the cash book are the cause of this account reconciliation difference. They are, in order of frequency:
- Receipts missing
- Bank fees
How Can I Simply Reconcile My Accounts?
Account reconciliation can be carried out manually. But it takes a lot of time and expertise. Additionally, there is no way to undo your work if you make any mistakes during the reconciliation process. To circumvent these issues, a lot of accountants employ account reconciliation software.
Businesses should leverage the cloud to improve the effectiveness and simplicity of the accounts reconciliation process, as you can see from the numbers above.
You might be considering ways to increase the effectiveness of account reconciliation. These specific actions can be taken to improve the entire accounting process.
1. Link your financial accounts
You may easily connect your bank accounts to accounting software if you already use it to get a constantly updated, real-time view of your account balance. By doing this, you’ve taken care of half of the accounts reconciliation process.
2. Integrate your accounting software, payment gateway, and sales channels.
Your accounting software will automatically update your bank balance once your payment and e-commerce platforms are linked. Additionally, individual transactions and payouts will be automatically synced with your accounting regularly.
To Sum Up
As you can see, a basic two-click routine may be established within the accounting program for a precise account reconciliation process. Try it out for yourself to verify!
You can always get in touch with the Your Part Time Accountant professionals if you have any additional queries. Try for yourself the power of a straightforward reconciliation.