Understanding your business’ financial health relies on account reconciliation. This process is a cornerstone of any business, regardless of size. However, some companies face more challenges than others in completing account reconciliation. It requires meticulous attention and can be best achieved with the help of accounting software.
Here’s everything you need to know about account reconciliations and how to get them done in a timely and accurate manner.
Account reconciliation is the process of comparing internal and external financial documents to ensure that they match. To do so, your business will look at internal financial documents and check them against statements from banks, financial institutions and credit card companies. This is a necessary step to complete the financial close.
For businesses without accounting software, the process is highly manual and often done on paper or with complex and timely online processes. For companies that utilise software made for this exact reason, you’ll be able to quickly and efficiently print batches of paid checks and review recorded transactions through the software’s register.
When comparing internal and external documents, the goal is to investigate discrepancies and resolve them as soon as possible. Account reconciliation is not a choice for public companies. Public companies are mandated by laws around the world to include these internal controls with annual financial reports, such as in the USA, under Section 404 of the Sarbanes-Oxley Act.
Account reconciliation is an essential practice. While it’s not a choice for public companies, it’s still the best practice of any business. Account reconciliation is all about the accuracy of a business’ financial health, and it can help to prevent problems before they arise.
Here’s a look at the main benefits of account reconciliation:
One of the most significant benefits of account reconciliation is the role it plays in protecting the accuracy of your company’s balance sheet. A balance sheet relies on all inflows and outflows, including credit card transactions, cash and loans. As such, it’s essential to make sure the numbers match up with statements to have an accurate view of financial status.
Here’s a look at some best practices for ensuring that your account reconciliation is executed correctly and managed:
There are two main methods to reconcile accounts, namely analytics review and document review. Here’s what this means:
If you’re not automation your reconciliation process, then these are the steps you will want to take:
1. Compare: Look at your internal account register against your bank statements and check them offline by line.
2. Make Note: For any cash transactions that don’t appear on the bank statement, be sure to deduct them from the bank statement balance. That all outgoing funds have been reflected in both your internal records and your bank account.
3. Match: Make sure that you match direct deposits from the cash book into the bank statement and vice versa.
4. Review: Although bank errors are infrequent, they could happen. If you notice a bank error, contact your bank ASAP and make sure that it gets resolved. The correction will show up in a future bank statement, so you’ll need to adjust the current period’s reconciliation to take care of the discrepancy.
5. Equalise: At the end of the process, you want everything to match up properly. If you had to adjust, be sure to document what it was and why the difference occurred in the first place.
Although automated software exists, some business owners still perform account reconciliation manually. This is mostly done with the usage of Excel spreadsheets; however, because of the sheer amount of data and numbers, it is prone to human error and can be very timely and costly.
Automated reconciliation relies on software systems to collect and process data with limited human intervention and is very efficient, accurate, removes bottlenecks so finance can focus instead on high-value tasks providing analytics and insights to the business.
The benefits of automating the account reconciliation process are immediate and obvious. They include:
The uses for automation in business are expansive. Automation shines in the account reconciliation process because it fits the criteria so well for the types of processes to automate. To exemplify, the best processes for automation are: repetitive, require the utmost attention to detail and occur frequently.
Account reconciliation software automates the above process by collecting data from various sources, including ERP systems, credit card processors, merchant services and bank statements. Then, it compares the data side-by-side and notifies users of any discrepancies so that humans can take it upon themselves to investigate a reason for the mismatched records. Some features of the software include automated approval workflows, document storage for review and audit, and reconciliation templates for easy standardisation.
The best way to implement an account reconciliation process (and software solution) that fits your business’ need is by assessing the big picture. The solution you choose will need to work for countless transaction types throughout your business’ financial doings. As such, take the necessary time to set up your account reconciliation process within your team and assess software solutions that are scalable and easy to use.