Reconciliation forms a significant part of a company's accounting and bookkeeping services. It ensures the accuracy and reliability of the data to further process and understand the business's financial health. Also, it provides that the company pays the correct amount of taxes to the government and stays in its good books. Reconciliation allows matching the financial data of one internally prepared statement with a statement sourced externally. It points out any gaps or discrepancies in the entry, omission, incorrect amount, etc.
A business can undertake the following types of reconciliation through accounting and bookkeeping services providers:
The primary reconciliation type that every business must undertake includes bank account reconciliation. It involves comparing the bank statement with the business's cash flow and other books of accounts. By examining the debits and credits in the financial statements and checking the closing balance, the company can verify any discrepancies. These errors can be from a missed entry like bank charges in official records, the wrong amount entered, bounced or uncashed checks, etc. Businesses must undertake periodic reconciliation- monthly, weekly, quarterly based on the volume of transactions to stay error-free and reduce the year-end burden of accounting and bookkeeping services.
Vendor reconciliation involves comparing the internally prepared vendor accounts with their statement and matching the entries. It ensures that the amount entered in your accounts payable is accurate and the vendor charges the same amount. It helps you to rectify the discrepancies beforehand and avoid disputes later.
Like vendor reconciliation, customer reconciliation in accounting and bookkeeping services involves getting a statement from your customers and matching it with your accounts receivable. It will help discover discrepancies in both parties' arguments and reduce any chances of fraud and manipulations. It prevents any confusion and misunderstandings later by solving a material inaccuracy beforehand.
Inter-company reconciliation allows the parent company to eliminate any inter-company flows in the general ledger of its subsidiaries. It also discovers missed entries in group companies and normalizes the companies' assets, liabilities, income, and expenses. It also helps identify any mismatches in invoicing, loans, interests, or such transactions.
It involves reconciling an activity that is specific and significant for a business. For example- companies, where the cost of goods sold forms an essential part of their accounts can reconcile the differences by matching the balance through the two methods. You can calculate COGS as: COGS= Opening stock + Purchases - Closing stock Or COGS= Sale- Gross profit
It involves matching the balance sheet entries with the corresponding accounts from where the accountant recorded them. It ensures that the closing balances are accurate and that no error prevails.
Like bank reconciliation, it involves comparing statements of credit card companies with internal accounts to rectify errors.
It involves matching the cash account balance with the actual amount in ha