What Is Account Reconciliation And Why You Need It?

Discrepancies are often the result of human errors, timing differences, and mistaken records in account transactions. The most commonly encountered discrepancies in an account take the form of duplicate entries and missing transactions, but often times, bank fees and unrecorded checks can also cause discrepancies and mismatches between data found in the general ledger and in third-party documents.

In some cases, account discrepancies are also caused by fraudulent activity or unauthorized account access to an account, although the occurrence rate of these causes is less common. Regardless of what caused the discrepancy, regular reconciliation is the key to maintaining a clear and accurate account. If you are unsure of what caused account discrepancies in your records, then you should ask a professional to perform reconciliation services to fix your account.

There are two principal ways one can reconcile accounts. The first one is titled “Document review” and it is done by comparing the general ledger documents to those emitted by outside institutions. These include documents, receipts, invoices, purchase orders, or other such type of documents.

The method is concluded by cross-referencing each of the transactions with their counterpart. The second method of doing account reconciliation involves the comparison of historical data against the current financial figures of a company. This is often done in order to identify those patterns that can be omitted during document matching or those accounts that are more prone to reconciliation error.

The more regular and constant your account reconciliation is, the more accurate and correct your documents are. The answer is determined by the size of the business in question. Most companies conduct account reconciliation on a monthly basis.

However, if the volume of transactions is high, certain companies might need to conduct weekly, sometimes even daily account reconciliation. The account reconciliation process in itself is a rather tedious one, but the more often and regular you reconcile your account, the more accurate your general ledger and balance sheet records will be.

When it comes to manual reconciliation and automated account reconciliation, both of these methods have their own pros and cons. The manual account reconciliation method involves human oversight of the general ledger, and it is reliant on spreadsheets. It is appreciated due to the high level of control it offers.

The automated account reconciliation method is known for its great capacity to handle high volumes of transactions, reduce human errors, and save time when it comes to the process of reconciliation.

Conducting regular account reconciliation is one of the best ways you can ensure your documents are accurate. By verifying the data recorded in the balance sheet with third-party documents, you ensure the completeness of your financial statements and eliminate the risk of turning in documents that do not reflect reality.

This is relevant not only for the well-being of your business, but it is also relevant in building trust with your clients and vendors. Moreover, reconciliation can also help attract stakeholders, as a regular account reconciliation process indicates discipline.