Account Reconciliation: The Bedrock of a Financial System

Irrespective of size and structure of the business, it is imperative to maintain a staunch financial system that paves way for productive success and advancement of the business revenue graph. From day-to-day bookkeeping to year-end tax filing there are a series of accounting procedures that need to be followed diligently to spread accuracy and precision in the financial system of any business. Small businesses especially require that professional assistance in their accounting procedures that further help in preparing a promising fiscal budget and efficiently control the business expenses. Out of all the other relevant accounting services, reconciliations of accounts is one of the most important practices that demands persistent attention and diligence to ensure utmost accuracy in the calculations.  

Account Reconciliation: An Overview

Keeping an observant eye on each transaction related to the business and transferring into respective accounts, account reconciliation is an accounting process to ensure the accuracy of a particular transaction by comparing its authenticity with related financial records. Account reconciliation makes it easier to detect errors in journal entries and general ledger and rectify in respective accounts. Account reconciliation performed at the end of every financial month or quarter is considered ideal to filter out errors and duplicity at an early stage without severely impacting the accounts.

Prominence of Reconciliation

In SMEs, even the smallest error in the financial system can be detrimental for the overall growth of a business. Ranging from poor cash flow management, inaccurate maintenance of daily records to inefficient tax filing, there are several accounting blunders that influence the balance of any staunch financial system. Saving valuable time and money for SMEs, accurate account reconciliation in place assists in streamlining the further accounting procedures and maintaining uniformity in accounts.

Account Reconciliation: A Smart Financial Decision

In general, account reconciliation is done for bank statements, credit card statements, invoices, and other related records. With the inclusion of digitization in the financial realm, several online payment gateways such as PayPal also undergo meticulous reconciliation practices. Basically, the purpose of monthly or quarterly reconciliation is to verify that a concerned transaction adheres to the corresponding financial record, maintaining accuracy and consistency in the accounts.

Maintaining updated accounting records and mitigating the numbers of business setbacks, reconciliation of accounts can benefit the business in the following ways:-

• It prevents the accounts from overdrafting
• It avoids the possibilities of fraudulent activities
• It helps in creating accurate financial statements.

The stratum of procedures to ensure the accuracy in the account reconciliation practice includes:-

• Keeping a record of all transactions along with their respective financial records
• Comparing each transaction with the available internal or external record
• Recording the transactions into journal entries and rectifying mistakes if any.
• Creating separate journal entries for the changes made in accounts after reconciliations.

Reconcile, For A Better and More Efficient Financial System!

The reconciliation process can become a strenuous task if not performed in a correct manner, neglecting adherence to industry-specific standards. Keeping a record of all transactions of the business and rightly placing them into their respective accounts, reconciliation is an imperative accounting procedure, even for SMEs. Not only maintaining a regular record of the transaction, but reconciliation also helps in balancing the cash inflow and outflow of the business and safeguards the proceedings from any major financial goof-ups.