It is a process followed by accountants to make sure that companies balances are correct in the accounts during the completion of a particular financial quarter or a year.
Account reconciliation is performed using the following methods:
- The account balances are compared to various systems of accounting.
- Check balance sheets, statements, invoices, receipts and arise investigation if any fault indicators are found.
- Get clarifications from the stakeholders on the fault indicators and act if a discrepancy is found.
Account reconciliations is an important part of corporate governance in the control of the financial reporting process. It is mandatory for public companies to perform account reconciliations as a part of their financial term closure
Account Reconciliations Process
The process of account reconciliation is usually carried out during the end of the financial period. The accountants check and verify every account in the general ledger and make sure that the balance listed on the filings is accurate and correct. The process involves comparing the balance of general ledger account with other provided data from independent sources like bank statements and credit card statement.
When discrepancies are found, accountants, investigate these discrepancies and take appropriate corrective action. This may involve making journal entries to correct balance errors. All information found, the analysis performed, and actions taken are stored for audit purposes. The account reconciliation process must be completed before a company can certify the integrity of its financial information and issue financial statements.
Software and Tools for Account Reconciliations:
In today’s financial environment, most of the bookkeeping work has been automated with the help of software and tools. There are specific tools for account reconciliation which automates all the steps involved in the process. This tool fetches data from all the available sources of appropriate financial information like CRM systems, ERP, bank statements, merchant services and credit card processors, invoice repository etc. These tools automatically compare the available data from the integrated sources and if it finds any discrepancies, it automatically arises a ticket to the accounting staff. The staff then uploads the supporting document and provides the clarification for the discrepancy support ticket. These automation tools reduce the man hours required by the accounting staff, and accounting staffs are needed in the process as a support function.
Features of Account Reconciliation Software:
- Review and approval workflows are automated with proper allocation of duties and responsibilities.
- Follows the standard operating procedures (SOP) and norms of the industry practices.
- Multiple templates and checklists are available to standardize processes and to support various industries.
- Easy integration. Features to store supporting documents make the audit process for easy review.
- Availability of links to policies and standard procedures for reference.