Why are reconciliations done

What is Reconciliation? What is Account Reconciliation? What are the Types of Reconciliations? Why Reconcile Accounts? What is the Reconciliation Process? What Creates Reconciliation Discrepancies? What is Balance Sheet Reconciliations? Advantages of Balance Sheet Reconciliations. What is General Ledger Reconciliations? Account Reconciliation Best Practices.

What are the Benefits of Reconciliation Tools? What are the Best Reconciliation Tools? What is Reconciliation and Automation? Reconciliation is a type of accounting process that compares different sets of records to make sure that they are properly recorded and in agreement. By comparing two sets of data, business owners and accounting departments can ensure that financial movement and account balances are being properly recorded and transacted.

In the past, reconciliation was only performed manually through the use of Excel spreadsheets. Now, businesses can reap the advantages of automation solutions like SolveXia , which can perform account reconciliations and save you time. Account reconciliation is the accounting process of comparing two sets of financial records.

In most cases, accountants perform account reconciliations at the end of accounting periods. This helps to make sure that general ledger account balances are accurately reflected. Account reconciliation can be performed in different ways since there is no one standard way to do so. This is especially true for publicly traded companies, which must share their internal control mechanisms with their annual reports as part of the Sarbanes-Oxley Act.

If you fail to complete account reconciliations in a timely manner, then you can incur the risk of having misstated accounts and making financial decisions that could be detrimental to your business. While it is possible and somewhat common to have discrepancies within your accounts, some will be easily explainable and others will require some investigation. No matter the reason for discrepancies, the main purpose of account reconciliation is to rectify these differences so that you can move forward with confidence in your account balances.

There are different types of reconciliations that can be performed on a personal or business basis. The good news is that you can automate any type of reconciliation. The most common of all reconciliations is the bank reconciliation.

Bank reconciliation is the process whereby businesses check their cash position by comparing the value of bank transactions internally with the statement from the bank. Vendor reconciliations review supplier-provided statements and the balance owed with the payable ledger and overall balance internally.

When a company exists under an umbrella of companies, then intercompany reconciliations are performed so that the parent company has accurate accounts. If you provide credit terms to customers, then customer reconciliation checks that the accounts receivable ledger is in sync with the receivables control account in the general ledger. There are other more specific reconciliations based on business types. For example, a company may have to reconcile their inventory value on the balance sheet by manually counting stock of goods held.

The reconciliation process is important for an array of reasons. When transactions are still pending on your bank statement, the balance reflected in your account may be different from reality. Performing bank reconciliations can help to avoid overdrafts from cash accounts. By maintaining different sets of financial records that are in accordance with one another, you can rest assured that balances are accurate. To adhere to government regulations, balance sheets must be right.

Reporting the wrong balances can be a costly mistake, both financially and for your reputation. By conducting account reconciliations, you will not only reduce compliance risk, but you will also quel or prevent risks associated with fraudulent activities. These include:. Whether you perform reconciliations with automation or manually, the steps go as follows:.

Most differences can be chalked up to one of the four following reasons:. Mistakes happen. It could also have been a mistake on behalf of the bank.

Whilst small and less complex businesses may not have an internal need to carry out reconciliations regularly, it is best practice for them to reconcile their bank at least once per month. Any differences found will be easier to understand if they took place over a short time frame. High growth businesses which burn large amounts of cash or those with little cash left in the bank should perform bank reconciliations weekly.

These requirements may be put on them by their investors and shareholders. Companies which are part of a group tend to perform intercompany reconciliations at month-end. These values tend to be reported separately within annual accounts, so their accuracy is important for both internal and external purposes.

Access the internal source of data being reviewed i. Confirm that the opening balance on the former agrees to the closing balance on the latter. Make a note of the closing balance i. The difference represents the value needed to fully reconcile this account. Update the internal data source being reconciled to record all new transactions i. If you use cloud accounting software, this can be made relatively easy by using the reconciliation function.

For example, if you are conducting cash reconciliations this process will involve simply matching activity from the bank feed to the transactions on your bank ledger, and then posting any new reconciling transactions. Once all legitimate missing or duplicate transactions have been posted or removed, the closing balance on the account being reconciled should agree to the closing balance of the external document it is being reconciled against. However, in reality, there are often still discrepancies due to timing issues related to transactions i.

In these instances, a reconciliation report needs to be produced, which quantifies and explains the reasons for the closing balance between the two data sources. Producing this report makes it easier to perform the next reconciliation, as these differences explain why there is a discrepancy between the opening balances of the two different documents. Failure to produce a reconciliation report when there are differences means that the correct values are not included in the corresponding account.

This results in the main accounts themselves being inaccurate. Depending on the significance of these differences, this could cause problems related to cash flow and could result in fines or penalties for unpaid bills.

Not producing a reconciliation report when one is needed will also make it more time consuming to produce future reconciliations, due to it being harder to unpick the differences. Whilst there is no prerequisite for most businesses to reconcile regularly, doing so is a good habit as it will mean that business and financial information is up to date.

Additionally, reconciling regularly will make it easy to spot and explain any reconciling transactions or errors. What did they wish they knew when they started out? This is what they said. View now. GoCardless is used by over 60, businesses around the world. Learn more about how you can improve payment processing at your business today. Learn more Sign Up. The payments transformation allows for instant transactions.

There may be instances where activity is captured in the general ledger but not the supporting data or vice versa, which may be due to missing transactions. Upon further investigation, it is identified that four transactions were improperly excluded from the general ledger but were properly included in the credit card processing statement.

There may be instances where a mistake or error causes a discrepancy between the general ledger and the supporting data. Account reconciliation software automates all the steps in the account reconciliation process.

It takes in data from various sources of financial information, such as ERP systems , bank files or statements, credit card processors, and merchant services.

It then compares account balances between these sources, and identifies any discrepancies so they can be investigated by accounting staff. This removes the burden of manually performing this task, and frees accountants to focus on analyzing discrepancies.

BlackLine Account Reconciliations is designed to streamline all aspects of the account reconciliation process. It adds proper controls and automation, imports data from any source, and is compatible with all major ERP systems. 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. BlackLine Transaction Matching further automates processes by enabling the comparison and validation of transaction-level account data. This allows accountants to view the exact transactions that are not matching in various systems and statements, decreasing the time spent locating discrepancies.

This is particularly useful for high-volume reconciliations, such as credit card reconciliations. Finally, when correcting journal entries are required, the BlackLine Journal Entry product automates this portion of the process as well. Templates are designed to replace error-prone spreadsheets, allowing accountants to perform reconciliations within the BlackLine software. Accountants can automatically roll-forward items, attach support, and eliminate formula errors.

For example, an amortizable prepaid template guides the preparer to enter specific details, including the prepaid name, total amount, and to and from dates, which automatically create an online amortization schedule in BlackLine.

Throughout the life of the prepaid, if the month-end GL account balance matches the expected balance in BlackLine, the account is auto-certified.

Auto-certification is a notable benefit in BlackLine. Organizations can configure rules based on their internal policies and controls to further optimize the account reconciliation process. This approach increases control globally and at the account level, allowing organizations to implement thresholds and set the frequencies automatically.

Accountants are freed from worrying about incomplete or messy reconciliations and can instead focus on the high-risk accounts, analysis, and adding strategic value to the organization.

One of the challenges of a manual reconciliation process is accountability. Accountants must manage workloads individually, set calendar reminders, and follow up with managers via email to complete reconciliations on time. Leadership must then rely on word of mouth or manual checks to ensure policies were properly followed. BlackLine, on the other hand, automatically tracks and manages assignments, workflow, status, and due dates.

The system also captures a complete audit trail, so a record is always available of who prepared, approved, and reviewed a reconciliation, along with the date and time the action occurred. The same person cannot prepare and approve a reconciliation—an essential point of control. Ever spend hours at the copy machine scanning and copying supporting documents for audit purposes? Furthermore, BlackLine allows you to group like accounts together, so supporting documentation can be attached once rather than duplicated for multiple accounts.