Reconciliation

Reconciliation means checking two financial statements for their agreement and accuracy. Normally it includes the comparison of internal accounts like ledgers with outside documents such as- bank statements, in order to discover and solve any disparities. The essence of reconciliation is that figures stated in two sets of records have to be consistent, so as to guarantee their accuracy and reliability. Any identified variations are examined and modified, if required, thereby preserving good financial reporting skills and integrity. In short it is a document that reviews the reconciling procedure of two sets of records, such as bank statements and in-house ledgers, to ensure they match. 

Key Components of a Bank Reconciliation

• Account Reconciliation Purpose: Clearly state the purpose of the reconciliation, such as the verification of bank account balances, reconciliation of intercompany accounts, or financial statement matching.
• Reconciliation Period: Indicate what period will be reflected in the reconciliation, such as monthly, quarterly, or annually.
• Accounts/Records Being Reconciled: Specify the various accounts or records to be matched against one another. This might include bank accounts, accounts payable and accounts receivable, or general ledger accounts.
• Beginning Balances: Present the opening balances for the two records being compared this might be the bank statement beginning balance and the balance for the internal ledger general ledger account.
• Adjustments: Note the changes that have been made to reconcile the records; this may include:

1. Bank service charges or interest not yet recorded on the internal ledger
2. Errors on the internal ledger
3. Transactions entered on one record but not the other or they have not yet hit the other

Reconciliation offers several key benefits.

The following are some of the major advantages of reconciliation: 

• Assumption of Accuracy and Integrity: it ensures that financial records are accurate and valid through an internal verification process of transactions and account balances with external sources, such as bank statements. 
• Errors Detection: through reconciliation, an entity may be able to ascertain errors or discrepancies-whether the result of imposed transaction or accounting errors-before they have any impact on financial reporting and/or decision-making.
• Fraud Detection: Regular reconciliation promotes the discovery of unknown or unauthorized transactions, therefore helping in detecting and preventing fraudulent activities and financial mismanagement.
• Financial Control: It enhances financial control by offering an auditable trail which assists in making sure that there is monitoring of the state of one's finance and complies with the requirements for regulations.
• Better Decision Making: Accurate and reconciled financial information offers a far better sight into decision-making by trying to show a fair view of the organization's financial position.
• Operational Efficiency: Organizing the reconciliation process and finding the reasons for discrepancies in time will eventually contribute to enhancing operational efficiency for an organization and reducing the risk of financial misstatements.

There are numerous types of reconciliation used in accounting and finance. Here are some common types:

Bank Reconciliation:

• Purpose: The bank reconciliation reconciles your bank statement balance with the balance in the general ledger cash account of your company. 
• Process: Add outstanding checks, deposits in transit, bank fees, and errors.

Account Reconciliation:

• Purpose: The balance of individual accounts to the general ledger or some form of subsidiary ledger, such as accounts receivable or payable, are tested.
• Process: Account ledger entries matched against backup documents or externally prepared reports.

Reconciliation of Trial Balance:

• Purpose: Debits total the credits in the general ledger accounts.
• Process: The totals of the trial balances are compared for balancing and variances identified.

Inter-Company Reconciliation:

• Purpose: Reconciling transactions and balances within various subsidiaries or divisions among the parent company.
• Process: Match intercompany transactions and balances for consistency to eliminate differences. 

Credit Card Reconciliation:

• Purpose: Comparing credit card statements with internally maintained expense records to see if they are correct. 
• Process: Reconciling or finding the difference between a company's credit card statement and credit card expense.

Inventory Reconciliation:

• Purpose is to confirm the actual inventory against what is recorded in the books through the accounting system.
• Process: Physical count is carried out, followed by an adjustment of books to allow for shrinkage, losses, or errors.

Generally, the steps and supporting documents performed in the process of reconciliation include:

• Gathering of documents: Bank statements, accounting ledgers, invoices, receipts, and other records of transactions.
• Comparing records: Compare the transactions in your internal accounting system with those shown on your bank statement or other external records. That means comparing each and every entry for its accuracy and completeness.
• Discrepancy Identification: Evaluate the records against the documents obtained externally and note down the differences, if any. The most usual discrepancies include overlooked transactions, error amount, or duplicate entry.
• Difference Hunting: Try to know why such discrepancies have taken place. This may involve contacting vendors for enquiries or reviewing detailed transactions or making error corrections in your records.
• Records Adjustment: Make necessary adjustments to your internal records to reconcile discrepancies. This may relate to journal entries for error correction or updates in your books.
• Final Review and Documentation: Re-review the reconciled records to ascertain accuracy. The process of reconciliation shall be documented along with the nature of adjustments along with a trail of audit.

• Bank statements
• Internal accounting records (Ledgers, Journals)
• Invoices and receipts
• Transaction records
• Reconciliation reports, (if any prepared in the previous times)

Thus, the stepwise process and documentation will surely lead to the correct and enforceable reconciliation.

Choosing Corpseed for reconciliation services guarantees a balance of accuracy and professionalism. Their experts will employ more sophisticated tools to ensure that your books tally perfectly with the external statements. Their dedication to accuracy provides minimal room for discrepancies and an increase in compliance with the regulatory standards. Believing in timely and efficient service, they have tailor-made solutions to make them a strong partner in maintaining financial integrity.