Know Types of Reconciliation in Accounting
What is Reconciliation in Accounting?
We decided to look at some of the pillars of the accounting profession while working with former accountants who now work at FloQast.
Accounting reconciliation is the most crucial step in ensuring that the figures in your financial records are correct. But here’s the thing: Reconciliation isn’t something you’ll learn in accounting school. The majority of people learn it on the job, if at all. It’s entirely feasible to have a successful accounting career without ever performing a single reconciliation. Reconcile your accounts
What is Reconciliation accounting and how Does It Work?
Account reconciliation is defined as “an accounting process that compares two sets of records to confirm that statistics are valid and in agreement,” according to Investopedia. Account reconciliation also ensures that the general ledger accounts are accurate, consistent, and complete.”
Comparing two sets of records may not appear to be a particularly thrilling process. However, it is an essential part of the closure process for assuring the accuracy of a company’s financial accounts. Reconciliation is a significant aspect of professional bookkeeping for organizations that outsource their accounting.
Types of reconciliation
Bank account reconciliation
The most common type of reconciliation, this one needs businesses to reconcile their cash position by comparing the value of recorded bank transactions in their accounting software to those on their monthly bank statements.
Reconciliation of vendors
Vendor reconciliations match the balance owing on supplier statements to the payable ledger’s transactions and overall balance.
Customer reconciliation
Businesses that offer credit terms to their clients do customer reconciliations.
Reconciliation between companies
Companies that are part of a larger group perform intercompany reconciliations. The parent firm can develop accurate consolidated accounting by doing intercompany reconciliations.
Reconciliation specific to a business
These are one-of-a-kind and pertain to the specifics of each company. Companies that sell goods, for example, must undertake a stock take to guarantee that the inventory value on the balance sheet appropriately reflects the worth of commodities stored.
How it is done?
Let’s take a step back and consider the who, what, and when of account reconciliations before we get started. The value of products in storage is appropriately represented on the balance sheet.
- Who: The best person is someone who is familiar with the types of transactions that pass through an account but isn’t the one who keeps track of them. Aside from the internal control element of segregating the recording and reconciling duties, a fresh pair of eyes is the greatest approach to spot errors.
- What: Any balance sheet account with a significant balance should be reconciled regularly. Autoren and similar tools make reconciliation so simple that every account may be reconciled in a matter of minutes — and some of it can be done automatically.
- When: Reconciliation may be required monthly, weekly, or even daily, depending on transaction volume. Monthly reconciliations should be completed as quickly as practicable after the completion of the accounting period.
- Check that the opening balances agree
- Record the difference of the closing balances
- Mark off all-new activity from the external document
- Review the closing balance and, if necessary, produces a reconciliation report
What’s the need for reconciliation?
Accounting reconciliation is a critical activity for both firms and individuals since it allows them to check for fraudulent behavior and avoid financial statement inaccuracies. As part of standard accounting operations, reconciliation is usually performed at regular periods, such as monthly or quarterly.
- The accounting procedure of reconciliation ensures that the actual amount spent matches the amount shown leaving an account at the end of a fiscal period.
- Individuals and businesses do reconciliation regularly to look for mistakes or fraudulent behavior.
