How to do account reconciliation when you are not accountant

Account Reconciliation is one of the processes adopted by the business to keep checks and track any discrepancies in books of accounts.

Maintaining and managing accounts in today’s business structure is very important. These books of accounts must be accurate and up-to-date so provide a true and fair position of the business at any given time.

It’s important to put in place a cross-checking process to validate the available data and ensure the accuracy and completeness of data. That’s why there is need of account reconciliation in business.

 

What is account reconciliation?

Reconciliation in general terms is the act of getting two things to be compatible with one another. Reconciling an account often means proving or documenting and the account balance are in agreement. The objective of such reconciliation is to correct details in the account if any discrepancies happen.

This process ensures whether the actual supporting document and the records of accounts are matching at the end of each recording period. This reconciliation process is very important for businesses and individuals to prevent financial statement errors and inspect any prevailing fraudulent activities.

 

Benefits of account reconciliation

Reconciliation is particularly useful for explaining the variance between financial records and actual account balances. These variance reports form a huge basis for maintaining and managing books of accounts to a true and fair view.

  • To track fraud: Prevention is always better than cure, it’s a very famous saying. One of the major aspects of reconciliation is to check for accounting gaps and to understand the reason behind such gaps. Such account matching and checking process help to mitigate the risk of frauds and misrepresentation and increases the chances to catch fraudulent activities are higher.

 

  • Eliminates accounting errors: Data and records are many times prone to human error and misses. Catching these errors and blunders is important so that the accounts are not incorrect and to avoid any future consequences for such an error. Accounting reconciliation on a monthly basis is a great way to keep your bookkeeping on the check. Thus reconciliation is important so as to check and keep all the error at the minimal level.

 

  • Secures business deposits: At times due to accounting error or mistakes, there may be the difference between deposits as per record and actual deposits. Thus reconciliation will help to track this variance and make sure that there are no last minute surprises for the business when they need cash.

 

  • Simplifies the bill paying: Managing business is a hectic job and so at times due to workload the person may forget to pay off his/her bills at the end of the month. Thus in such cases, reconciliation helps to track bills and their respective payment. Thus due to the timely tracking of these payments there wouldn’t be cases of overdraft or missing payment. The reconciliation process helps to manage client payment and details efficiently.

 

  • Saves money: As all payment and deposits are tracked properly and all errors and misses are avoided due to regular reconciliation, reconciling your accounts is the great cost saver. All payment is made on the timely basis, there are no penalties, there are no misses in deposits and there are no errors. Thus due to reconciliation there are saved cost and enhanced the profitability of the business.

 

  • Efficient Decision making: If all the accounts are properly reconciled on regular basis, this enables efficient reporting system in an organization. The advanced reporting system eventually supports decision making procedure.

 

Types of account reconciliation

The below are the major types account reconciliation.

Account reconciliation within the account

The reconciliation of amounts and value within the account is to be undertaken so that the account is correct. A few accounts are to be verified and validated internally (within itself) over the period of time. For example in the case of Prepaid Expenses account, once the period has been completed then the payment amount must be shifted from the prepaid account (Balance sheet) to profit and loss statement.

 

Account reconciliation with an external account

Accounts are also to be reconciled with their external counter-part records so that there is no difference between your records and the records maintained by the other party. This will avoid any last minute surprises from either of the sides and makes possible to have cordial relationships.

There are many of important external account reconciliation to be undertaken by every organization, the details are as below:

  1. Bank and cash Accounts reconciliation: The bank accounts and cash accounts form a very important in an organization. Thus these accounts are to be regularly reconciled. The reconciliation is undertaken between the bank and cash account maintained by the organization and the bank account maintained by the bank. The reconciliation will show all the outstanding entries items like amount paid but not deducted from the bank account and/or the amount paid but not deposited in the account.
  2. Inter-company payable and receivable accounts reconciliation: Nowadays many of the companies are reviewing and matching the payable and receivable data with their respective clients and/or vendors. Each month the vendor or client provides the list of the amount payable or receivable from the organization and the same is validated with the account details maintained by the organization. The difference is properly dealt with and communicated to counterparty so as to avoid any discrepancies in either of the account and total amount calculation for payment and receipt. This reconciliation keeps in check with all the inter-company transactions and provides the correct valuation of the payable amount and receivable amount over the period.
  3. General ledger to sub-ledger reconciliations: It’s always a good practice to match master general ledger balance with the total of the sub-ledger. This matching is done by matching the supporting schedules and document against each amount of sub-ledger accounts and then all proofs are consolidated to match with the value of master ledger. This reconciliation is undertaken to ensure the account balances are correct and there are faults.

 

Accounts which must be regularly reconciled

Reconciliation of all accounts is important, but there are few accounts which are more important to be reconciled on regular basis and more frequently than the rest. The list of accounts are:

  • Bank account
  • Cash account
  • Account Payable
  • Accounts Receivable
  • Taxes Payable
  • Loans Accounts
  • Investment account
  • Inventory Account (Opening and closing stock details)

 

How to do Bank Reconciliation?

The goal of bank reconciliation process is: to ascertain the differences between the two records (accounting records as per company and accounting records as per the bank), and to book changes to the accounting records as appropriate. It is extremely unlikely that a company’s ending cash balance and the bank’s ending cash balance will be identical, as there are probably multiple payments and deposits in transit at all times. Thus it always better to adjust all the pending action, entries and items to the records and books of account to arrive at a final and complete bank account balance.

Steps to complete the reconciliation of bank accounts are:

  • Step 1: Data Collection: Collect the documents that you will need to prepare the reconciliation. You must collect all bank statement that is received from the bank and the check register for the month.
  • Step 2: Check the Variance: The object of this step is to find the gaps in between the account. All the deposits and withdrawals that a company has recorded and that have not been cleared by the bank are to be investigated and separately checked.
  • Step 3: Make a list of Variance: All the misses and mismatch in both the accounts must be separately listed and each identified gap must be clearly investigated. The transactional gaps must be validated and verified whether the entry is outstanding entries due to time period mismatch or the gap is due to fraudulent activities. All these entries must be listed along with the reason for such a miss and documented for future reference purpose.
  • Step 4: Adjusting Bank account value: Once all details and transaction causing the difference is recorded. Any debits entries that have not been accounted for will need to be deducted from the balance on the bank statement. Similarly, any credit entries that have not been accounted for will be added to the balance on the bank statement. After adjusting all pending debit and credit entries which were missed and not accounted the balance of both the accounts must match.

After the balances of both the account matches then the reconciliation is complete.

  • Step 5: If the balance of both the accounts doesn’t match: If after following all the steps the balances don’t match then there is an error in the account. A detailed investigation must be undertaken to understand the error and ensure the correction of the same.

 

How to do Account Payable Reconciliation?

The goal of accounts payable reconciliation is to ensure that the account payable balance matches with the company and receivable schedule maintained by the vendor. The major reasons for any such gaps are payment released from the organization and the same not credited to the vendor account or any mismatch of values between vendor and organization and other such reasons.

Step 1: Ensure that closing balance of account payable balance matches with the opening balance of the payable account balance for the following period.

Step 2: Check the ageing of accounts payable and match the same with the payment schedule of each vendor. Ensure all outstanding payment for the month is made and proper journal entries are made in the books.

Step 3: Review the accounts payable general ledger account to see if any journal entries were made to the account during the current reporting period. If so, document these items in a reconciliation spreadsheet.

Step 4: After matching all values and checking all journal entry, verify the closing balance of the period and compare the same with client’s data, if both the amounts and values are correct and matches then the reconciliation is complete.

Step 5: If after following all the steps the account balance doesn’t match then there is an error in the account. A detailed investigation must be undertaken to understand the error and ensure the correction of the same.

 

How to do Account Receivable Reconciliation?

The goal of accounts receivable reconciliation is to ensure that the account receivable balance matches with the company and payable schedule maintained by the client. The major reasons for any such gaps are payment released from the client and the same not credited to the company’s account or any mismatch of values between client and organization and other such reasons.

 

Step 1: Ensure that closing balance of account receivable balance matches with the opening balance of the receivable account balance for the following period.

Step 2: Check the ageing of accounts receivable and match the same with the payment schedule of each vendor. Ensure all outstanding payment for the month are made and proper journal entries are made in the books.

Step 3: Review the accounts receivable general ledger account to see if any journal entries were made to the account during the current reporting period. If so, document these items in a reconciliation spreadsheet.

Steps 4: After matching all values and checking all journal entry, verify the closing balance of the period and compare the same with client’s data, if both the amounts and values are correct and matches then the reconciliation is complete.

Step 5: If after following all the steps the account balance doesn’t match then there is an error in the account. A detailed investigation must be undertaken to understand the error and ensure the correction of the same.

 

How to do inventory reconciliation?

Inventory reconciliation is undertaken with an aim to ensure that the actual inventory and the recorded inventory amounts are the same at a given point in time.

Step 1: Compare the value of recorded inventory records in the books of account with the actual physical inventory. Count the items to double-check the values and items.

Step 2: If the balance as per records and the actual stock number doesn’t match, then you need check whether the same is an accounting error or stock and value mismatch or other.

Step 3: Match each stock item with their respective invoices and thereof with the unit value and total value. Recalculate the values in case there are any misses or mismatch of the details.

Step 4: Record and adjust any variance values in the books and complete the account.

Step 5: If after following all the steps the account balance doesn’t match then there is an error in the account. A detailed investigation must be undertaken to understand the error and ensure the correction of the same.

Following similar steps and procedure, you can reconcile different accounts and check the validity of the values at regular interval.

 

How to do reconciliation in QuickBooks Software?

QuickBooks software consequently ensures that your financial records are accurate. Thus the software provides you in-built reconciliation facilities of the accounts. The below are the steps to be followed to enable the reconciliation feature in QuickBooks.

  • From the Account drop-down list, select the appropriate account. Enter the ending date of the Statement that you are working with.

Note: If there is a previous reconciliation, the default statement date is the date of the last reconciled statement plus one month. If there is no previous reconciliation, the default statement date is the last day of the previous month.

  • Compare your statement’s opening balance with the amount shown in the Beginning Balance field. Fill out any other relevant information. Click Continue to open the Reconcile.
  • Check any items that match your account statement. If the transaction does not match and the statement is incorrect, please contact your financial institution.
  • If the statement amount is correct and QuickBooks is incorrect:
  • Double-click the transaction in QuickBooks to display it.
  • Correct the error, and then click Save & Close.
  • Click the corrected transaction to reconcile it.
  • If your Difference is zero, congratulations! Click on Reconcile Now to finish your reconciliation and print your reports.
  • If your Difference is not zero, make a note of the difference amount.Research the transaction to confirm that it was correctly entered into QuickBooks and then print your reconciliation report.

Similar to QuickBooks many of the online software like Xero, Zoho Books, Ignitespot, Accountex Accounting Software, Wave, etc., have introduced reconciliation features into their accounting software. This online accounting software provides brief instruction for Bank Reconciliation.

The below are few of the instruction and access and complete reconciliation in few of the online accounting software.

  • Bank Reconciliation under Wave Accounting System

At the top of the Transactions page, you can see the options for the Ending Balance, Verified Balance, and Difference. Clicking on the Verified Balance and Difference boxes will reveal Withdrawals and Deposits details. If there’s a difference between the Verified Balance and the Ending Balance, it will be displayed in the Difference box.

 

You can also set up rules for matching your bank transactions automatically to invoices, bill payments and purchases that are already recorded in Xero, making reconciliation seamless.

 

Account reconciliation service:

There are many online and offline software available nowadays which can help you to reconcile your accounts. Your business activities need to be tracked properly and reconciliation place all checks and controls to ensure your business data is accurate and complete. If you are stuck with something or have not the time to do account reconciliation, we have the team of expert accountants here who can help you. Contact here to get started.

 

 

2017-12-25T11:51:17+00:00