Nature of accounting reconciliation statement
It is significant for businesses to make certain their financial information is correct, complete and reliable. Among other tools used to achieve this, preparing accounting reconciliations signifies one of the more important ones. As a small business owner you might think that reconciliations are not such important, but boring and time-consuming? Let us to give you a few reasons that might change such awareness. First, preparing reconciliations on a regular basis assistances confirm that cash is not stolen from your business. Next, reconciliations serve as a means of recognizing and fixing accounting mistakes (i.e., making sure all sales were recorded, etc.). Lastly, reconciliations can help in finding un-posted bank transactions or bank errors.
Superlative practices in preparing account reconciliations
As might be the case with any other business procedure, there are numerous best practices for preparing account reconciliations:
First, it is significant to prepare reconciliations on an appropriate basis at the end of a period (each month, quarter or year). The occurrence of preparing reconciliations depends on the level of activity and risk of mistake related with specific accounts. For instance, high-activity accounts (accounts receivable, accounts payable, cash, possibly fixed assets, etc.) must remain reconciled on a monthly basis since activity within these accounts is high and characteristic risk of mistakes is therefore high as well. Such mistakes must be recognized and modified well-timed. Reasonable-activity accounts (notes receivable, notes payable, long-term debt, possibly fixed assets, etc.) might be reconciled once a quarter since there is a certain (but not necessarily high) amount of transactions recorded in such accounts and risk of mistakes is slightly lower. Low-activity accounts (trademarks, owners’ capital, etc.) might remain reconciled on an annual basis since such accounts have very limited (if any) activity and therefore, much lower risk of mistakes.
Second, reconciliations might result in reconciling items. Reconciling items might be small or large. If there are important reconciling items, they must be examined and necessary adjustments must be made in the accounting records to confirm there are no material mistakes in the financial statements. Note that we mentioned “material errors” which in simple terms means mistakes that would affect a decision-making procedure of a business owner, creditor or investor.
Third, it is essential to preserve separation of duties in the accounting reconciliation procedure. There must be different reconciliation preparer and reviewer/approver. For instance, bank account reconciliations must not be completed through the employee responsible for distributing checks or depositing cash. When such separation of job duties is not maintained, if an employee misappropriates cash by writing checks to him- or herself, he or she would be intelligent to hide that when preparing reconciliations. On the other hand, if there is a separate reviewer/approver of the reconciliation, then the employee wouldn’t be talented to hide any wrongdoings. Another instance of separation of duties is as follows: a person who handles payables and writes checks must not reconcile and review/approve the reconciliations for such accounts (but can prepare them for somebody else’s review/approval).
Lastly, reconciliations must be filed and available in case one requirement to go back to review what happened in the past. The utmost appropriate way is to keep supporting documentation attached to reconciliations.
The main benefits of working with Reconciliationaccounting are below:
Consistent Data Source – Reconciliationaccounting business give you consist and precise data which can be easily used for the benefits of the decision-making desires. This in turn guarantees competence in workflow and there is no expenditure of time.
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Securities, Uniformity, Rapid growth, Speed, services and improve customer satisfaction, improved presentation, Backend effective work environment these are main goal of Reconciliationaccounting.
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