Every company needs to have properly managed business finances to run the business efficiently. Otherwise, business owners won’t be able to know if they are earning a profit or loss. Without account reconciliation, you won’t have accurate records that would only cause discrepancies in your business. Account reconciliation is the most common and important practice in a company. To find out financial irregularities in various bank accounts, account reconciliation is important.
What is Account Reconciliation?
Account reconciliation compares two sets of records to check whether they match with each other. Most often, this process involves making comparisons between internal financial records and monthly statements released by external sources, like banks. Businesses have the chance to report inaccuracies to the bank (or any external source of statements) during the account reconciliation process and have them fixed. This is important because any unresolved differences could harm an organisation’s perception of its financial health.
Types of Account Reconciliation
Account reconciliations can take many different forms and be done for either personal or professional purposes. Bank reconciliation, business-specific reconciliation, vendor reconciliation, customer reconciliation, and intercompany reconciliation, are the five main categories of account reconciliation. And they all help you in maintaining your balances.
It is one of the most common reconciliation types. It makes a comparison between transactions recorded in your general ledger and monthly bank statements. With reconciliation, you can identify discrepancies in missing transactions. Reconciliation can help companies find problems promptly and resolve them.
You reconcile your accounts payable records against statements given by vendors and suppliers to ensure the paid amount for a product matches the amount received by the vendor. Vendor reconciliation helps avoid conflict between a vendor and a business. When all records or transactions show the same result, it makes the relationship between you and your vendors strong.
Here, you make a comparison between internal records at the start and end of the financial cycle. You will see if the services provided or goods sold match your internal records.
Parent firms utilise intercompany reconciliation to combine all of the accounts and ledgers from their subsidiaries. An intercompany reconciliation searches for discrepancies both within and between any two subsidiaries that could be the result of invoicing mistakes involving loans, deposits, and payment processing operations. The financial statement of the company can then be corrected if necessary.
Businesses reconcile their accounts with customers by comparing invoices sent to the information in their accounts receivable ledger. For businesses that give their clients credit terms and options, this procedure is useful. These businesses’ accountants can compare the money received and the money owed.
Step-by-Step Account Reconciliation
Collect all records
Get all relevant ledgers, invoices, and records for each type of account reconciliation. For example, purchases, earnings, payments, and expenses occur each month.
Compare the statements
Start making comparisons between your statements and external statements and notice the missing records. It would be easy to perform a side-by-side comparison of your records to external records to avoid missing any records. You should focus on the debits to your accounts. Check if you made transactions for outgoing funds recorded in your internal ledger. After that, do the same thing for credits.
Review the discrepancies
If you have still some discrepancies, then you need to dig deeper. Review and check each transaction with mismatches and ask the person who is involved to determine why your records are inaccurate. If you have checked everything but didn’t find anything responsible for errors, then confirm to banks and vendors that everything is clear from your end. Unfortunately, banks rarely make any mistakes in their statement, so make sure to ask a professional bookkeeper to reconcile accounts on your behalf.
It is suggested to hire a reliable bookkeeper for your company when it comes to account reconciliation because they better know how to reconcile accounts properly.
The blog highlights different types of account reconciliation along with steps to reconcile accounts. Ensure to seek help from a bookkeeper when reconciling accounts because they are experts in reconciliation. For bookkeeping solutions for your company, you can also ask Reliable Bookkeeping Services provider.