Accounting reconciliation: What it is and how its done

Businesses that prioritize effective reconciliation practices put themselves in a strong position to make informed decisions, mitigate risks, and maintain the financial health necessary for long-term success. Account reconciliation is a process that involves identifying discrepancies between business ledgers and outside source documents. Accuracy and strict attention to detail are the fundamental principles of this process. Various factors, such as timing differences, missing transactions, and mistakes can cause these discrepancies. The process is important because it ensures that you can weed out any unusual transactions caused by fraud or accounting errors. This works by comparing 2 sets of records and is a way of making sure all the figures are correct and match up.

And generating financial reports in Clio Accounting is a breeze, making your life, and your accountant’s life that much easier. Once the individual client ledgers and the firm’s trust account ledger are aligned, you can then reconcile the client ledgers and trust account ledgers with your trust bank account statement. Account reconciliation is a vital process that helps businesses maintain their financial health by identifying errors, preventing fraud, and ensuring the validity and accuracy of all financial statements.

How Account Reconciliation Works (Reconciliation Process)

Variances between expected and actual amounts are called “cash-over-short.” This variance account is kept and reconciled as part of the company’s income statement. When you reconcile accounts, you compare two or more sources of a company’s accounting to check for errors and bring them into agreement. This reconciliation involves rolling forward fixed asset balances, accounting for purchases, sales, retirements, and accumulated depreciation.

Business Specific Reconciliation

By catching these differences through reconciliation in accounting, you can resolve discrepancies, help prevent fraud, better ensure the accuracy of financial records, and avoid regulatory compliance issues. It not only allows you to protect your clients’ funds, but your firm too as a result. Depending on the number of discrepancies, you may need to create a supporting schedule that details the differences between your internal books and bank accounts. The primary objective of reconciliation is to identify and resolve any discrepancies between the two sets of records.

To implement effective reconciliation processes, you need to create and document the exact procedures that staff and lawyers should follow. Stripe Revenue Recognition streamlines accrual accounting so you can close your books quickly and accurately. Automate and configure revenue reports to simplify compliance with IFRS 15 and ASC 606 revenue recognition standards. The information provided in this article does not constitute accounting, legal or financial advice and is for general informational purposes only. Please contact an accountant, attorney, or financial advisor to obtain advice with respect to your business. As such, a $40,000 discrepancy due to the missing transactions should be noted in the reconciliation, and an adjusting journal entry should be recorded.

1. For example, you may need to reconcile your trust account bank statement with client balances at a specific frequency, such as monthly or quarterly.
2. An investigation may determine that the company wrote a check for $20,000, which still needs to clear the bank.
3. How often should you conduct the three-way reconciliation accounting process?
4. Similarly, if you were expecting an electronic payment in one month, but it didn’t actually clear until a day before or after the end of the month, this could cause a discrepancy.
5. In this case, businesses estimate the amount that should be in the accounts based on previous account activity levels.
6. This process helps detect errors, prevent fraud, ensure regulatory compliance, and provide reliable financial information for data-driven decision-making.

Bank Statement Reconciliation FAQs

After finding evidence for all differences between the bank statement and the cash book, the balances in both records should be equal. You should prepare a bank reconciliation statement that explains the difference between the company’s internal records and the bank account. For lawyers, reconciliation in accounting is essential for ensuring that financial records are accurate, consistent, and transparent. While proper reconciliation is the standard for how law firms should handle all financial accounts, it is particularly important—and often required—for the management of trust accounts. The first step in bank reconciliation is to compare your business’s record of transactions and balances to your monthly bank statement. Make sure that you verify every transaction individually; if the amounts do not exactly match, those differences will need further investigation.

This reconciliation process allows you to confirm that the records being compared are complete, accurate, and consistent. Check that all outgoing funds have been reflected in both your internal records and your bank account. Whether it’s checks, ATM transactions, or other charges, subtract these items from the bank statement balance.

This is important for ensuring the reliability of financial reporting in any organization and maintaining the integrity of the process and results. Stripe’s reconciliation process involves comparing your business’s internal records, such as invoices, with external records like settlement files, payout files, and bank statements. Stripe’s automated system handles this comparison, enabling you to capture revenue accurately and reconcile your internal accounting systems with Stripe-processed charges and refunds at a transaction level.

FAQs on Reconciliation

Bank reconciliations involve comparing the business’s financial statements with the statements it receives from the bank. This helps to ensure that the business’s records accurately reflect the transactions that have taken place in its bank account. Accounts payable reconciliation makes sure that general ledger balances match those forensic audit guide in underlying subsidiary journals. It adheres to accrual accounting principles and reconciles balances for credit card statements to the appropriate payables account. In a company, bookkeepers, clerks, and accountants keep a record of these debits and credits. These should match up with external accounts like bank statements for month-end reconciliation.