- Posted by Saurabh Bhardwaj
- On September 6, 2021
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Account reconciliation…… Do you know what account reconciliation means? How important is it for your business?
This post will tell you what it means and how important it is to keep your business on track.
What is Account Reconciliation?
Account reconciliation is when you compare the bank balance as per the company’s accounting records with the balance stated on the bank account statement. It is very essential as it helps us to find errors and fraud. It helps to maintain accuracy and exercise better control over the company’s financial situation.
Ensures accuracy of transactions
Ensures the existence of transactions
Catching frauds before its too late
Catching other errors or issues
The purpose of Account reconciliation is it helps to detect errors and fraud between invoices and actual payments. If you notice errors regularly,
it’s likely there’s an opportunity to improve business operations. By avoiding making these errors, the processes can run more smoothly. If there are any differences in the accounts and amounts, these differences need to be explained. Reconciling bank statements helps us to find out errors and frauds. It will highlight issues that should be examined during the receipt or recording of the transaction. It helps to gain better control and increased efficiency within your funds’ management.
Detects errors and fraud:- Bank reconciliation is a critical job for every business because it allows the identification of fraudulent activity and the prevention of financial statement errors. It helps to validate data entry, confirm the accuracy of financial statements and accurate tax reporting. As part of standard accounting operations, reconciliation is usually performed at regular periods, such as monthly or quarterly.
Bank Reconciliation Tools:- Bank Reconciliation Tools helps to automate and standardize the reconciliation process to produce high-quality and accurate financial statements. Accountants can easily
compare general ledger, bank, and other data.
The tools used for bank reconciliation are Account Reconciler and Auto Reconciler. They help to enhance the reconciliation process by allowing clients to effectively modify General Ledger data and checkbooks within Microsoft Dynamics GP.
Record Reconciler:- Clients can use Record Reconciler to handle their bank statements, including multicurrency trades. It makes use of the transactions that are displayed on the general record account of the checkbook.
Auto Reconciler:- It allows you to exchange data from an external document source and match bank transactions with Microsoft Dynamics GP checkbook transactions. Auto Reconciler works with both Encore’s Account Reconciler and Dynamics GP Bank Reconciliation to adapt companies with a large number of bank transactions.
How to do an account reconciliation:-
There are four simple steps in completing an account reconciliation, which is as follows:
Compare the deposits
The first step in account reconciliation is to match the deposits in the business records with those in the bank statement. Compare the amount of each deposit recorded in the cashbook’s debit side of the bank column with the credit side of the bank statement, and in the cashbook’s credit side of the bank column with the debit side of the bank statement.
Adjust the bank statements
Make the necessary adjustments to the bank statements’ balances to reflect the revised amount. You must add deposits in transit, subtract outstanding checks, and add/deduct bank errors.
Adjust the cash accounts
The next step is to adjust the cash balance by adding interest or deducting monthly charges and overdraft fees. To do this, bank charges, NSF checks, and accounting errors must all be considered by businesses.
Compare the balances
After adjusting the balances as per bank statements and cash accounts, the adjusted amount should be the same. If they still don’t match u have to repeat the reconciliation process. At last, businesses need to prepare journal entries for the changes to the balance as per books.