It’s Valentine’s season and the Gnosis team is talking about reconciliation. Accounting reconciliations, that is...
Reconciliations are accounting processes that compares two sets of records, often internal and external, to ensure that figures are accurate and in agreement. The reconciliation that is best known is the bank reconciliation: the process of matching entries in the company’s cash account with corresponding data on its bank or credit card statements, to confirm that the balance on the general ledger matches the balance on the bank statement.
Reconciliations are also part of accounting best practices, with timely financial reconciliation processes and accurate accounting records required for owners, investors and employees to know your company is stable and secure.
In a small business, reconciliations can often feel like an overwhelming and easily overlooked task. However, if reconciliations are not completed in a timely manner, it can result in discrepancies that compound over time. If you perform reconciliations on a regular basis, you can catch and correct these inconsistencies before they become a big problem.
Here’s our expert team’s five steps to follow for accounts reconciliations:
1. Standardize your reconciliations
Using financial automation (accounting systems) makes it very easy to standardize financial reconciliations and enables reconciliations to be completed a lot faster. Reconciliations should be prepared in the same manner every time, so results and outcomes can be compared to previous periods.
2. Determine the frequency of reconciliations
For smaller entities, entries should be done at least weekly. For larger organizations, with a significant number of transactions, reconciliations should be done daily. It’s important to identify the frequency of reconciliations, so management will know whether reports generated from the accounting system are accurate and up to date.
3. Identify differences and discrepancies
Balances in the General Ledger should match to financial reports, bank statements and credit card statements received. If amounts do not agree, these differences should be noted and investigated.
4. Investigate differences
Not all differences are necessarily errors that need to be corrected, e.g. differences as a result of timing, and therefore it is important that we investigate the reasons for them.
For example, international payments can often take 1-5 business days to reflect in the receiving party’s account. When the payment transaction appears on our bank statement, we will mark the bill as paid in our accounting system.
The supplier, however, will only receive funds 1-5 business days later, at which time they will update their records accordingly. There will therefore be a temporary difference between our accounting records and that of the supplier, without it being a definitive error.
This step is required in situations where mistakes were made. It is very easy to transpose numbers when making payments. For example, if the bill amount was $978 and we accidentally made payment of $987, it is an error that needs to be corrected. A competent bookkeeper can easily find these types of errors and will also know how to correct them.
At Gnosis, our team of business and technology experts provide unrivalled knowledge and advice you can trust. We understand the inner workings of your business and want to grow with you.
If you would like to speak to us about our range of accountancy services, please get in touch today.