What is reconciliation in accounting?
Reconciliation in accounting is a vital part to ensure that the numbers in your financial records are complete and accurate.
Cloud accounting software has made this an easy and efficient process by using automation features - ensuring that matching transactions is hassle-free. However, the process still needs actual people to verify certain transactions that may have never entered the accounting system, such as cash transactions.
What is Account Reconciliation?
According to Investopedia, account reconciliation is an accounting process that compares two sets of records to check that figures are correct and in agreement. Account reconciliation also confirms that accounts in the general ledger are consistent, accurate, and complete.
Reconciling may not sound so exciting, but like mentioned, reconciliation is an essential part of your financial records, especially of your bookkeeping.
Double-entry accounting is a basic and common way to do account reconciliation. This involves keeping two separate accounts: one for deposits, which tracks money coming in, and one for credits, which tracks money going out. In other words, each entry must have a debit and a credit that equals.
Why should you reconcile your accounts?
Your company’s balance sheet shows all money spent—whether cash, credit, or loans—and all assets purchased with those funds. Accurate reconciliation ensures that net income is correct.
Another thing is you get to maintain a good relationship with your suppliers. Proper reconciliation could also mean vendor accounts will be paid on time and avoid loss of service or goods from your suppliers.
Also, financial institutions like banks are strict for missed payments or approved overdraft values being exceeded. Reconciling your bank regularly will minimize the possibility of receiving fines and penalties.
How account reconciliation works?
Compare your books’ statements against the bank’s statements.
Note all the payments recorded in your books that do not appear as payments in the bank account statement.
Check both your books and the bank statement for transactions that appear in both records.
Check the bank statement for errors.
Make sure the balances are equal.
Lessen the Burden of Accounts Reconciliation. Start Outsourcing.
Accounts reconciliation may sound easy, but trust me, it isn’t. It requires significant effort and an eye for detail. So, it is best outsourced to a professional.
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