Account Reconciliation

Reconciliation is one of the most complex tasks to complete in accounting. There are several types of reconciliation, but all have the same goal: to ensure accuracy and completeness in financial reporting. Prioritizing accurate records plays a crucial role in cash management.

What Is Accounts Receivable Reconciliation?

This process matches invoices to the corresponding payments received. Doing this ensures that all payments are accounted for and recorded correctly. Businesses worldwide still use spreadsheets to complete this task, but proactive companies now rely on automation.

What Are the Main Types of Accounts Reconciliation?

The types vary based on the specific records or accounts you need to double-check. Most companies cover these main areas:

  • Accounts receivable reconciliation tackles all invoices sent, and all payments received.
  • Accounts payable reconciliation compares invoices to the corresponding payments made.
  • Bank reconciliation matches your company’s internal records of cash transactions with your bank statements.
  • Credit card reconciliation is similar to bank reconciliation but focuses on credit card statements and transactions.
  • Payroll reconciliation compares your payroll records with the amounts paid to workers.

Why Complete Account Reconciliation?

Accountants, payroll professionals, and managers often dislike the reconciliation process. Here’s why you should complete the procedure anyway:

  • To ensure accuracy: Reconciliations have also helped companies identify systematic errors in their accounting policies and the errors they cause.
  • To prevent fraud: Completing account reconciliations can help businesses detect and prevent fraudulent activities.
  • To improve cash flow: Businesses can better manage their cash flow by ensuring that they account for all payments.
  • To make informed decisions: Accurate financial reporting helps businesses make informed decisions about their finances.

What Are the Challenges of Performing Account Reconciliations?

Despite its importance, account reconciliation can be a complex and time-consuming task. Identifying the factors that make it challenging provides you with the information you need to simplify the account reconciliation process. These are the main challenges to keep in mind:

  • Organizational challenge: Accountants need a clear understanding of organizational structure and procedures to ensure accuracy.
  • Data entry challenge: Incorrect data entry is one of the most common causes of errors in reconciliation.
  • Time challenge: The process can be time-consuming, especially if done manually.
  • Resource challenge: Businesses need to have skilled staff and adequate resources to complete the process accurately and efficiently.

What Are the Main Steps of the Account Reconciliation Process?

The reconciliation process steps vary based on the type of account. However, they all follow basic principles and can look deceivingly simple. Consider the following basic steps:

  1. Identify the types of reconciliation you need to complete.
  2. Gather the relevant documents and statements.
  3. Compare the records.
  4. Make adjustments and corrections.
  5. Verify the accuracy of your reconciled account.
  6. Document the reconciliations.

What Can Companies Do To Simplify Reconciliations?

Businesses should consider automating the process with accounting software to ensure accuracy and efficiency. Doing so saves time and resources while reducing the risk of errors. When choosing software, look for a solution that offers the following characteristics:

  • Accurate data entry: The software should have built-in controls to ensure accuracy.
  • Time-saving features: Automation can help you save time by simplifying the process.
  • Flexibility: The software should be able to adapt to your specific needs.
  • Ease of use: The software should be easy to use to get started quickly.

Gaviti brings these and many other perks to the table for AR teams. You can easily integrate it with reconciliation-specific accounting software for even better insights. Get started with a free quote.

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