In a company, bookkeepers, clerks, and accountants keep a record of these debits and credits. These should match up with external accounts like bank statements for month-end reconciliation. The reconciliation process balances 2 sets of figures with the aim of both being equal. Reconciliation then lets those managing the process ensure that the figures are correct and in agreement. It helps eliminate fraud and any accounting errors, helping a business be more efficient.<\/p>\n
For example, the Accounts Receivable balance could begin by comparing the balance with an aging of the accounts receivable. But even if you\u2019re not subject to Sarbanes-Oxley, reconciling accounts \u2014 especially cash accounts\u2014 on a timely basis can help prevent fraud. We\u2019ve all heard of small businesses that lose tens of thousands, even hundreds of thousands, to embezzlement. Many of those thefts could have been halted in their tracks immediately if the bank accounts had been reconciled regularly.<\/p>\n
As important as account reconciliation is in accounting, there is not much focus on it in accounting classes. In fact, many accountants can enjoy a successful career without having to perform a single account reconciliation. Another example is reconciling the balance in the general ledger account Utilities Payable. This might be accomplished by computing the daily cost of each utility that the company uses.<\/p>\n
In this case, the reconciliation includes the deposits, withdrawals, and other activities affecting a bank account for a specific period. A company may issue a check and record the transaction as a cash deduction in the cash register, but it may take some time before the check is presented to the bank. In such an instance, the transaction does not appear in the bank statement until the check has been presented and accepted by the bank. It’s a good idea to reconcile your checking account statement (or at least give it a careful look) when you receive it each month.<\/p>\n
Bank errors are infrequent, but the company should contact the bank immediately to report the errors. The correction will appear in the future bank statement, but an adjustment is required in the current period\u2019s bank reconciliation to reconcile the discrepancy. Also, transactions appearing in the bank statement but missing in the cash book should be noted. Some of the transactions affected may include ATM service charges, check printing fees. The bank discovered that the mysterious transaction was a bank error, and therefore, reimbursed the company for the incorrect deductions.<\/p>\n
Nowadays, many companies use specialized accounting software in bank reconciliation to reduce the amount of work and adjustments required and to enable real-time updates. If there are any differences between the accounts and the amounts, these differences need to be explained. Reconciling your bank statements allows you to identify problems before they get out of hand. Because the individual is fastidious about keeping receipts, they call the credit card to dispute the amounts. After an investigation, the credit card is found to have been compromised by a criminal who was able to obtain the company’s information and charge the individual’s credit card.<\/p>\n