Accounting Services

Accounts Reconciliation: Detecting discrepancies, confirming correctness

Making sure of the correctness of financial records is essential for businesses of any size, not just because it’s a statutory or regulatory requirement, but also because of the significant role, it has to play in a business’ growth.  

There are many different kinds of Accounts Reconciliation which include:

  • Bank reconciliation
  • Business reconciliation
  • Cash account reconciliation
  • Customer reconciliation
  • Inter-company reconciliation
  • Receivables and payables 
  • Vendor reconciliation

Finding and rectifying discrepancies in a business’s financial records and transactions is crucial in that it can detect fraud or the misuse of funds and prevent errors, as well as explain irregularities. It also serves as the foundation for ensuring the accuracy of the financial statements that are based on these records.

Frequent and regular Accounts Reconciliation is highly recommended, as the longer a business goes without performing this task, the more difficult it becomes to back-track and verify the necessary documents. Many businesses outsource this function to an accounting services provider precisely because of this frequency, as well as the attention to detail and the particular skill set required.

Balancing the books.

There are many ways to perform Accounts Reconciliation, of which double-entry accounting—where each transaction is recorded in no less than two places—is among the most preferred. Another method is account conversion, where a business compares its ledger entries to receipts, cheques, and other such documents.

Where Accounts Reconciliation was traditionally done by hand using ledgers and spreadsheets, larger and more active businesses have increasingly turned to cloud accounting solutions to facilitate and automate this process of comparison as well as reduce the risk of error. 

The general steps involved in the Accounts Reconciliation process include:

  • Collating all the relevant documents
  • Confirming that all incoming and outgoing funds are correctly recorded
  • Comparing these records with records from the bank
  • Correcting errors as well as confirming the causes behind them

Banks, individuals, and businesses.

The most common kind of Account Reconciliation, Bank reconciliation entails comparing bank records to a business’ in-house records. It helps a business monitor its own liquidity and keeps tabs on expenditures, as well as avoid the inconvenience resulting from bounced cheques, missed payments, and the like. 

Note that Account Reconciliation is crucial for individual or self-employed professionals as well as businesses and that though the processes involved may differ in scale, they are similar in nature. The documents used in Account Reconciliation for individuals, for instance, may include bank statements and credit card receipts, while those for businesses may include balance sheets, income statements, and general ledgers.