Whether you’re a small business or a massive and publicly traded company, ensuring that your accounts are in order is vital. This is why a key role of accountants is to perform the task of account reconciliation.
However, you might ask what account reconciliation even is. Put simply, it is the process of comparing different accounts and ledgers to make sure your books are in order.
It is a process that takes place at the end of every tax year and is vital for your company’s finances, compliance, and transparency.
If you want to learn more and find out why it is so important, here is an essential guide to Account Reconciliation 101.
What is Account Reconciliation?
Let’s start with explaining account reconciliation. Basically, it is the process of comparing all of the figures in an account with another corresponding financial record to make sure the balances act.
The figures could include total account balances, expenses, ingoing, outgoing, and deductible fees. Typically, one might compare their business account ledgers with bank statements or receipts, to ensure that everything matches up.
You could simply compare a bank statement from a cash account with one from your business account. Account reconciliation is more urgent at the end of the tax year. However, it is a process that can be undertaken on a daily, weekly, or monthly basis.
Why Does it Matter?
Now that you know the basics of how account reconciliation actually works, it’s time to cover why it is so important.
Accurate and honest financial reporting is not just good practice, it is a legal obligation. The IRS and FCC can accuse you and your business of fraud or theft if you do not submit accurate, matching information.
When this happens, you could be imposed with fines, sanctions, investigations, audits, and even jail time. Of course, the IRS does not aim to be needlessly punitive with businesses that might have made an honest mistake.
However, it will certainly not help if you consistently submit financial records that are later revealed to be inaccurate. Account reconciliation can also help your business grow and remain on sound financial footing.
Unmatched accounting data might make you incorrectly believe that you have more funds in your business account than is actually the case. This could lead to you over drafting an account, and spending beyond your means.
In addition, failure to reconcile your accounts might cause you to miss genuine fraudulent activity in your business. Identifying mismatched accounts is essential if you wish to detect and prevent theft and fraud within your company.
The Account Reconciliation Process Explained
So how does account reconciliation work in practice? First of all, an accountant will compare your accounts to existing external records such as statements and invoices.
They will go through all accounts meticulously and adjust their ledgers when they identify any discrepancies.
Then, they will audit your accounts to find out what, if anything, has gone wrong. They will then correct your account balances, allowing you to submit accurate, fair, and trustworthy financial information to the relevant authorities.
Hire an Expert Bookkeeper Today
Now that you know what account reconciliation used for, it’s time to reap the benefits yourself.
Don’t hesitate to get in touch with our team of experienced accountants today to arrange for flawless account reconciliation that will keep your business on the right track.