6 tips for reconciliations

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NetSuite has packaged the experience gained from tens of thousands of worldwide deployments over two decades into a set of leading practices that pave a clear path to success and are proven to deliver rapid business value. With NetSuite, you go live in a predictable timeframe — smart, stepped implementations begin with sales and span the entire customer lifecycle, so there’s continuity from sales to services to support. Businesses are generally advised to reconcile their accounts at least monthly, but they can do so as often as they coyote buttes wish. Businesses that follow a risk-based approach to reconciliation will reconcile certain accounts more frequently than others, based on their greater likelihood of error. These processes are made even harder by outdated technology and disconnected data from multiple ERPs, subledgers, banks, and other sources, requiring extensive use of spreadsheets and a huge amount of manual, repetitive work. Essentially, reconciliation is done to verify that accounting for a certain period has been accurately portrayed on a company’s books.

Configurable validation rules allow for the auto-certification of low-risk accounts, significantly reducing the workload of accounting staff. When discrepancies do exist and require analysis, customizable templates, checklists, and integrated storage for supporting documentation ensure that reconciliation processes are standardized across the organization. The account reconciliation process must be completed before a company can certify the integrity of its financial information and issue financial statements. BlackLine is a high-growth, SaaS business that is transforming and modernizing the way finance and accounting departments operate. Our cloud software automates critical finance and accounting processes.

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These steps can vary depending on what accounts you are reconciling, but the underlying premise is always the same – compare your ending balance against supporting documentation and make any adjustments as needed. Invoice reconciliation also compares two sets of documents for accuracy, but instead of ending balances, you’re comparing invoice details against a hard copy. While very small businesses can use cash basis accounting, if you have employees or have depreciable assets, you’ll need to use accrual basis accounting.

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As mentioned above, account reconciliation involves comparing internal account information against external documents. This procedure ensures that the business’s internal records align with external data. The primary objective of reconciliation is to identify and resolve any discrepancies between the two sets of records. This helps preserve the integrity of financial statements and identifies errors or fraudulent activities. Account reconciliations can also help identify bank and credit card errors.

And for those of you still handling your accounting manually, making the move to accounting software will eliminate much of the work you’re doing using manual ledgers. Some of the sub-ledgers you may be using include fixed assets, payroll, accounts payable, and accounts receivable. If you’re not using accounting software, you’ll have to prepare a reconciliation form, which can be as simple or detailed as you like. The form needs to provide you with enough space to add any outstanding items that will resolve any discrepancies between the two balances. Two of the most common types of account reconciliation include balance sheet reconciliation and general ledger reconciliation.

• However, any adjustments on the general ledger side will have to be entered.
• And if you never reconcile your accounts, chances are that fraudulent activity will continue.
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• Starting with the ending balance of the prior period, you add all the increases and subtract all the decreases to get to the ending balance.

Some reconciliations are necessary to ensure that cash inflows and outflows concur between the income statement, balance sheet, and cash flow statement. When an account is reconciled, the statement's transactions should match the account holder's records. For a checking account, it is important to factor in any outstanding checks or pending deposits. Learn more about how to fast-track your F&A organization’s path to financial close efficiency and balance sheet integrity. 2) CostThe costs of running an accounting and finance department vary widely. But, across the board, companies can reinvest in business support, analytics, and forecasting when automation inevitably provides valuable cost savings.

Why accounting reconciliation matters for businesses

A company controller wants to reconcile all balance sheet accounts at the end of the year, so that their ending balances can be justified to the auditors. This involves collecting documentary evidence concerning the amounts stated in each account. One of the most important things you can do to keep your general ledger accurate is to perform a bank reconciliation monthly. Take my word for it, you don’t want to skip this process, even for a single month.

Step 5: Compare Balances One More Time

If you use double-entry accounting in your business, you need to do account reconciliations monthly. The most important account reconciliation your business can perform is the bank reconciliation. By adhering to these best practices, businesses can ensure their account reconciliation process is as efficient, accurate, and effective as possible, contributing to better financial management and decision-making. This type of reconciliation helps businesses maintain accurate financial records and identify any discrepancies, so they always know who owes them money and who they need to pay. In doing so, the business can effectively manage cash flow, ensuring timely payment of bills, and collection of receivables.

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Account reconciliation is particularly useful for explaining any differences between two financial records or account balances. Some differences may be acceptable because of the timing of payments and deposits. Unexplained or mysterious discrepancies, however, may warn of fraud or cooking the books. Businesses and individuals may reconcile their records daily, monthly, quarterly, or annually.

It is prudent to reconcile credit card accounts and checkbooks on a regular basis, for example. This is done by comparing debit card receipts or check copies with a person's bank statements. Accountants typically perform an account reconciliation for all their asset, liability, and equity accounts. This process involves reconciling credit card transactions, accounts payable, accounts receivable, payroll, fixed assets, and subscriptions to ensure that all are properly accounted for and balanced. Any differences between what’s recorded in your financial records and what’s reflected on the bank statement can be chalked up to several reasons. For instance, money might be taken out of the bank account and not recorded on the accounting side or expenses paid with the company credit card, such as vendor payments, might not be inputted.

Anytime something appears out of the ordinary, you’ll want to review the originating documents such as invoices entered to determine if they were posted properly and whether any adjustments need to be made. Reviewing your comparative trial balance is one of the most important things you can do for your business. A trial balance can tell you a lot about your business in a single glance. For example, when reviewing your trial balance for the current year, you notice that your travel expenses have been averaging $1,500 a month, but in July, travel expenses jumped to $5,000. While it may be tempting to fly to Vegas with those extra funds, the bank will likely find the error when they’re reconciling their accounts, leaving you stuck in the desert with an empty wallet. When you leave a comment on this article, please note that if approved, it will be publicly available and visible at the bottom of the article on this blog.