Maintaining accurate and transparent records is paramount for a successful organization. Amidst the myriad of transactions and complexities inherent in daily business operations, this task can be challenging and oftentimes organizations fall behind on the daily tasks. Consistent monthly reconciliations can help. What does this pivotal internal control involve? Let’s dive in.

What are account reconciliations?

Account reconciliations verify the accuracy of transaction details by comparing your internal ledger with external statements and other detail records.

There are four common forms of reconciliation:

1. Bank reconciliation- This is the process of comparing a company's financial records with its bank statement to ensure they accurately reflect the same transactions and balances. It is imperative this is done monthly to ensure all cash is properly accounted for.
2. Vendor reconciliation- This process helps verify that amounts owed to vendors match the invoices they’ve issued. Businesses can ensure that any discrepancies are identified and resolved.
3. Cash reconciliation- This process reviews an organization’s cash on hand and compares it to the recorded cash transactions (which should match).
4. Account reconciliation- This process reviews transaction detail or subledgers with the general ledger to identify discrepancies and ensure proper classification of items.

5 Benefits of reconciliation:

1. Detecting errors- The main benefit (and purpose) of reconciliations are to review an organization’s financial data and identify errors which might include bank errors, duplicate entries, missing transactions or fraudulent activity.
2. Cash management- Reconciliations provide an accurate picture of an organization’s cash position. Through reconciliation, you can track cash flows, monitor account balances, and identify any unusual or unexpected transactions promptly.
   
3. Regulatory compliance- Meeting regulatory reporting requirements and adhering to standards and guidelines set by regulatory bodies depends on accurate and transparent financial records. Reconciliations help pinpoint any instances of non-compliance, to reduce risk or any regulatory scrutiny.
4. Accuracy- Reconciliations also help verify how accurate your financial data is, and as such, help with budgeting, decision making and financial reporting.
5. Preventing fraud- Reconciliations can help organizations identify any discrepancies in finances that may signal fraudulent activity (forged checks, unauthorized withdrawals, etc.)

Questions? Need help getting started with reconciliation? Contact us.