How account reconciliation keeps your business on track?
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.
Objectives:
- Ensures accuracy of
transactions
- Ensures the existence of
transactions
- Catching frauds before its
too late
- Catching other errors or
issues
Significance:
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 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.
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.
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:
1. 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.
2.
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.
3. 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.
4. 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.
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