Account reconciliation is the process of comparing records, looking for discrepancies, and correcting them where appropriate. It can be tedious, but it’s an important aspect of cash flow management. Businesses use account reconciliation to uncover imperfect accounting systems, maintain GAAP compliance, and even detect fraud.
In this article, we’ll discuss the types of reconciliation, provide a cash reconciliation template to use in your business, and share a handful of best practices.
Table of Contents
Learn the Essentials of GAAP Accounting
How Reconciliation in Accounting Works
When you implement a reconciliation plan in your accounting processes, it will typically follow this structure:
- Choose a starting point. Usually, businesses reconcile every month, but some may opt for weekly or quarterly. Once you’ve chosen, check that the last period’s ending balance matches the current account balance.
- Next, you’ll gather relevant data. Depending on the reconciliation, you may be comparing any number of documents: internal cash flow statements, balance sheets, income statements, payroll reports, customer invoices, vendor invoices, or expense receipts.
- Analyze the data, noting and investigating discrepancies along the way. For an example, read our article demonstrating what bank reconciliation looks like.
- Maintain records, including supporting documents verifying transactions and any adjustments to relevant accounts.
Types of Account Reconciliation
As a business owner, there are quite a few different accounts to manage and keep track of. Here are some of the most common:
Bank Reconciliation: Comparing company cash accounts with bank statements, verifying that any bank errors are caught and deposits in transit are accounted for.
Credit Card Accounts: An essential aspect of tracking business expenses, comparing statements with transactions in company accounts ensures that tax deductions are maximized.
Accounts Payable and Receivable: Matching customer and vendor invoices with payment records to check that all transactions are correctly recorded.
General Ledger: Since all inflows and outflows are eventually reflected in the general ledger, this is a good place to begin account reconciliation.
Inventory: Pairing physical inventory counts with receiving and sale records enables businesses to accurately value inventory while potentially identifying theft.
Payroll: Aligning payroll records with bank statements to confirm that employees have been correctly paid and that payroll tax has been properly applied.
Cash Reconciliation Template
Understanding account reconciliation is one thing, but maintaining documentation is easiest when you have a quality template to work from. If you don’t have one already, use our cash reconciliation form and expand it to match your needs.
Best Practices
In 2024, the Association of Certified Fraud Examiners (ACFE) reported that financial statement fraud cost affected companies a median of $766,000. Not only is reconciling accounts important for maintaining regulatory and GAAP compliance and cash flow monitoring, it can also prevent financial catastrophes.
Best practices include the following:
Regular Reconciliation: The sooner a problem is caught, the sooner it can be resolved. Monthly reconciliation is recommended, but more frequent reviews may be appropriate depending on the volume of transactions.
Segregation of Duties: No single person should be responsible for all aspects of your company’s cash flow. By dividing reconciliation, recording, and spending authorization among multiple people, the likelihood of fraud decreases.
Diligent Recordkeeping: Maintaining copies of invoices, bank statements, and other documentation makes the reconciliation process possible, not to mention protecting your company in the event you’re audited.
Use Bookkeeping Software: Leveraging automated processes to record transactions reduces the likelihood of errors while streamlining the reconciliation process.
Conclusion
Account reconciliation is a critical process for business owners, ensuring financial accuracy and regulatory compliance. Indinero’s online bookkeeping services team is here to help you manage reconciliation, so you can focus on running your business.
