The strength of a business relies upon the detailed maintenance and bookkeeping of the company’s cash flow and accounts. Therefore, a sensible business owner organizes his business accounts every month. Keeping a close eye on its liabilities, equity, and assets is crucial. The most professional way to manage these elements is by reconciling balance accounts sheets.
Reconciliation is the process through which a business owner can get a clear idea about the percentage of revenue generated, spent, and saved.
Reconciliation refers to balancing the company’s account books to make it easier for you to understand. Therefore, it is vital as it helps the owner and the accountant estimate the amounts mentioned in the financial records.
Accountants conduct regular closings monthly, quarterly, bi-yearly, or annually. The figures in the financial statements are cross-checked with invoices, cheques, payment schedules, and other supporting documents to validate payment transactions.
Critical elements in reconciling account balance sheets include the following.
- Cash Flow Statement: Analyzing earnings and expenditures.
- Accounts Payable: Verification of accounts for which liabilities are pending.
- Credit Card Details and Transactions: Examination of credit card records.
- Prepaid Expenses: Confirmation of prepaid items.
- Accounts Receivables: Validation of accounts where payments are pending.
- Debt (Bank Loan, if applicable): Review of outstanding loans.
- Equity: Assessment of the company’s ownership interest.
- Fixed Assets: Verification of long-term assets.
This process ensures accuracy and integrity in financial reporting.
The Best Way to Reconcile Your Account Balance
Financial closing is a sedate challenge if you do not conduct it with total concentration. Most of the accounting software has an account closing module built-in. The procedure below can help you get the account closing done quickly and easily.
Get Your General Account Book Printed
The first thing you are required to do is get a clear printout of the general financial statement of your corporation that you are willing to reconcile.
Download the Bank Statements
Once you download the financial statement printout, the next step is to download the bank statements of the account you are willing to reconcile.
Verify Your Transactions
It is a crucial step that demands maximum attention and has zero tolerance for human error. Compare all the transactions mentioned in your business’s bookkeeping records with the bank statements. It will help you rectify miscalculations (if any).
Note Down the Differences Between the Two
While comparing the general company accounts with the bank statements, rectify all the possible miscalculations and note down all the possible errors.
Investigate the Matter
One or two errors are acceptable during verification, but if the miscalculations are more common, immediately call for an immediate investigation. In such situations, the chances of employee theft are high.
Rectify the Changes in The Financial Statements
After you have noticed it all, rectify the errors wherever necessary.
Aces Of Reconciling the Account Books
Reconciling is necessary to manage a healthy cash flow cycle. Also, it lends a helping hand in avoiding inaccurate financial information that may cause you potential financial loss, whose seriousness might lead you to bankruptcy. Some of the proven benefits of bookkeeping are listed below:
Detects Employee Theft
One of the most visible benefits of account verification is that it is the best detector and quickly unveils employee theft within the corporation. Major miscalculations make it clear that one or a group of your employees is the culprit in employee theft.
Manage Positive Cashflow
A healthy cash flow is the backbone of a strong business. However, maintaining positive cash flow is a tough job. Reconciling the accounts can help keep a stern eye on the company’s cash that enters and exists.
Prevents Financial Miscalculations
Human errors are common in every field, particularly in maintaining financial records. Settling down your accounts at the end of every month and year can assist you in preventing even the slightest possible accounting or calculation error.
Final Sum-Up
Accounting and its management are crucial parts that help in successfully establishing a business. At the end of every month or year at least, reconcile your accounts to avoid errors. If you go careless about managing the balance sheets, you might land your business on a drowning track, causing you unbearable financial loss.
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