Reconciliation Accounting: Reconciling Accounts and Making the Most of Reconciliation

Documentation review is the most commonly used account reconciliation method. It involves calling up the account detail in the statements and reviewing the appropriateness of each transaction. The documentation method determines if the amount captured in the account matches the actual amount spent by the company. Even if you have an outside accounting firm that creates financial statements and prepares tax returns, their records are only as good as the information received from a business’s internal records. When it comes to reconciling cash inflows from accounts receivable, integrating your payment acceptance with your enterprise resource planning (ERP) system can effectively automate the cash application process for you. This eliminates the need for manual data entry, saving you valuable time and effort.

This could result in business decisions that are not feasible or too risky given your current financial standing. Balance sheet reconciliations also offer insight and transparency into a business’ inner workings and where money is being spent. Transactions, such as checks, may hit your bank statement a few days after you make a deposit.

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There also allows leadership to spot processing errors caused by duplication and calculation mistakes. While reconciling the bank account, you may find that bank fees have gone up and your company is paying unnecessary fees related to overdrafts. You may even discover some transaction fees could be eliminated by switching the bank account type you currently use. This type of reconciliation happens when a parent company unifies all the general ledgers of its subsidiaries to eliminate intercompany flows and minimize bank transaction fees. This process helps identify inconsistencies between subsidiaries and unrecorded transactions or balances on the books of group companies. For example, when your company makes a sale, it will debit cash or accounts receivable (AR) on your balance sheet and credit revenue on your income statement.

Run an updated trial balance

Automatically identify intercompany exceptions and underlying transactions causing out-of-balances with rules-based solutions to resolve discrepancies quickly. Common account reconciliation differences are timing differences in recording to the general ledger, outstanding and missing transactions, and transaction errors. Companies which are part of a group tend to perform intercompany reconciliations at month-end. These values tend to be reported separately within annual accounts, so their accuracy is important for both internal and external purposes. Reconciling your accounts is not optional due to the necessity for all companies to file annual statements, summarising a year’s worth of transactions accurately. Companies which are audited will have the validity of their financial statements put under greater scrutiny due to the audit process, testing whether they are accurate and free from material misstatement.

The same person cannot prepare and approve a reconciliation—an essential point of control. Upon further investigation, it is identified that the Company wrote a check for $10,000 which has not yet cleared the bank. As such, a $10,000 timing difference due to an outstanding check should be noted in the reconciliation. If you recently attended webinar you loved, find it here and share the link with your colleagues. Finance and accounting expertise is not only needed to prevent ERP transformation failures, but F&A leaders are poised to help drive project plans and outcomes. NetSuite has packaged the experience gained from tens of thousands of worldwide deployments over two decades into a set of leading practices that pave a clear path to success and are proven to deliver rapid business value.

To do this, a reconciliation statement known as the bank reconciliation statement is prepared. If you want to add a new reconciliation code, you must define the new code in UDC table 09/RC. However, if you are using bank statement processing, you cannot use values A or D because they are used by the Bank Statement programs.

What Is Reconciliation in Accounting?

Compare the cash account’s general ledger to the bank statement to spot the errors. Match the deposits in the business records with those in the bank statement. Compare the amount of each deposit recorded in the debit side of the bank column of the cashbook with credit side of the bank statement and credit side of the bank column with the debit side of the bank statement.

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Vendor Reconciliation

Look for any missing information and errors before you jump to conclusions. If there are still discrepancies after you’ve made the necessary adjustments, you might need to consider an audit to rule out fraud or hold the responsible parties accountable. Finance teams can reconcile accounts directly by updating cash flow statements with individual transaction details.

• Financial institutions are less likely to be forgiving for missed payments or approved overdraft values being exceeded.
• An intercompany reconciliation looks for mismatches within and between any two subsidiaries that may have resulted from billing errors involving loans, deposits, and payment processing activities.
• The account reconciliation process keeps your business on track with its finances and different regulatory requirements.

This leaves companies unable to pinpoint if all the transactions in their statements are accurate or if they require further revision. The reconciliation process happens at the end of every reporting period—monthly, quarterly and annually—to ensure every GL account matches the balance of its corresponding sub-ledger or external transaction system. The process typically involves 8 3 research and development costs three distinct stages once the initial books are closed, and trial balances are created for the period. Accounts receivable is the amount that your customers owe you for the goods sold or services provided. You will need to give special importance to reconciling accounts receivables to ensure steady cash flow and good customer relations to name just a few reasons.

The Ultimate Goals of Account Reconciliation

Another reason for intercompany reconciliation is to identify which assets belong to which subsidiary. If the records don’t match, finance experts can investigate to find the reason and make changes where necessary. Examples of unintentional reasons for differences are missing invoices or unrecorded transactions. For intentional discrepancies, you might find fake checks or misuse of funds. More productive teams, more accurate numbers and, ultimately, a better bottom line—all from picking the right account reconciliation software. Full-spectrum FP&A options streamline account reconciliation, empower finance teams and give leadership the tools and confidence to make the right decisions—not just in finance but across the organization.

In double-entry accounting—which is commonly used by companies—every financial transaction is posted in two accounts, the credit account, and the debit account. The identified items necessitated increasing cash by $4,968.21 ($52,503.51 correct balance, less the balance per company records of $47,535.30). Note that the $462.06 debit to Accounts Receivable indicates that The Tackle Shop is going to attempt to collect on the NSF check and related charge. The interest income of $569.34 reflects that posted by the bank ($119.34) plus the $450 on the collected note.

Account reconciliation is necessary for asset, liability, and equity accounts since their balances are carried forward every year. During reconciliation, you should compare the transactions recorded in an internal record-keeping account against an external monthly statement from sources such as banks and credit card companies. The balances between the two records must agree with each other, and any discrepancies should be explained in the account reconciliation statement. This type of account reconciliation refers to the process by which a company compares its bank account balance as reported in its books to bank statements from its financial institution.

Even with an online payment portal, you’ll still get payments coming in from outside of the platform via checks or electronic payments. With an AR automation platform that has built-in image recognition and AI-enabled matching capabilities, you can automate the majority of those applications too. Reconciliation comments serve as a valuable tool for providing additional insights, explanations, and documentation related to the reconciliation process, discrepancies, or adjustments made.