For accountants, reconciling accounts is as ubiquitous to work life as grading papers is for a teacher. As soon as one period ends, another round begins—and that’s exactly how it should be. And while account reconciliation won’t go away, we’ve compiled this blog to outline examples of some of the most common types of accounts to reconcile and other frequently asked questions on the topic.

What are some examples of accounts to reconcile?

Here are a few types of accounts that require regular reconciliation as part of the month-end or year-end close.

• Bank reconciliation: During this process, a designated member of the accounting department compares company bank statements with the general ledger. Ideally, entries into the general ledger should match those in the bank statement. If they do not match, an accountant will need to determine what is missing and whether the error originated with the company or the bank.
• Reconciling the cash balance to the bank account: This process involves aligning internal financial records, like recorded cash transactions, align with external financial records, like bank statements, to ensure all transactions are properly reconciled. (Learn how one Trintech customer cut their cash rec processing time by 90%)
• Cash applications: This process is related to cash reconciliation, but cash applications specifically refer to matching customer payments to open invoices.
• Reconciliation of accounts payable: This process involves checking vendor balances against supplier invoices and payments.
• Reconciliation of account receivable: During this process, accounting teams match customer balances with invoices and payments. (link to future blog)
• Intercompany account reconciliation: For large enterprises with multiple subsidiaries, this process involves ensuring balances between all of the subsidiaries agree.
• Fixed asset reconciliation:During this process, accounting teams compare the organization’s accounting records of its fixed assets with its physical assets and related ledgers to ensure recorded costs, depreciation and net values align to offer a true picture of a company’s assets.

What documents are needed to reconcile accounts?

The types of documents required to reconcile accounts varied based on the type of account, but they typically include bank statements, general ledger entries, invoices, receipts, purchase orders, payroll reports, inventory accounts and credit card statements.

How do you reconcile a bank statement with the general ledger?

The bank reconciliation process typically involves:

1. Analyzing the bank statement.
2. Comparing the bank statement to internal records, like the general ledger.
3. Making manual resolutions for things like bank service fees, interest earned and NSF checks.
4. Final reconciliation and substantiation ensures all discrepancies between the general ledger and the bank statement have been reconciled.

Who is responsible for reconciling accounts in a company?

These responsibilities vary based on the size of the organization. For small businesses, account reconciliation is usually the responsibility of the owner, a bookkeeper or accountant. For larger enterprises, reconciliation is handled by the accounting or finance team, with oversight from a manager or controller. For internal controls, reconciliations are often reviewed by a different person than the one who prepared them, to ensure accuracy and prevent fraud.

What skills are important for reconciling accounts accurately?

Reconciling accounts requires a mix of skills to ensure the organization’s financial reports are accurate down the final decimal point. Key skills include:

• Attention to detail – spotting small differences or errors.
• Analytical thinking – investigating and explaining discrepancies.
• Knowledge of accounting principles – understanding how entries should be recorded.
• Excel or software skills – working efficiently with reconciliation tools.
• Time management – meeting monthly or quarterly deadlines.
• Communication – explaining findings to managers, auditors, or colleagues.

What happens if accounts are not reconciled properly?

Improper account reconciliation can lead to inaccurate financial statements that provide misstated revenues, expenses or balances, cash flow problems (if bank balances don’t match records, missed errors or fraud due to unnoticed discrepancies, audit issues due to weak controls and finally, regulatory or tax risks leading to penalties. In severe cases, improperly certified accounts could land your CFO or Controller in jail, so accuracy and having proper controls in place is especially important to them. Follow these four steps to reduce risk in the financial close.

How do auditors use reconciliations during an audit?

Reconciliations are central to audit efforts because they are used to verify account balances in the financial statements, test internal controls to ensure proper processes are followed, identify usual transactions or unexplained differences, and to assess the risk of misstatement in high-risk accounts. Strong, well-documented reconciliations reduce audit questions and speed up the process.

What are some common challenges in reconciling accounts and how can they be solved?

Some of the most common challenges in account reconciliation include high volumes of transactions to reconcile, timing differences, data entry errors, missing supporting documents for recordkeeping purposes and resource constraints. Implementing software purpose-built for the financial close can help solve all of these challenges as it automates transaction matching, cutting the time spent on this time-consuming process by 90% or more. It also provides a single source of truth for dates, documentation and roles/responsibilities.

Learn how HR Block Effectively Reconciles Over a Million Transactions Monthly with Trintech.

How do spreadsheets compare to reconciliation software?

Spreadsheets are a favorite tool for accountants because they are flexible, customizable and inexpensive. They may be effective tools for reconciling accounts for smaller businesses, but as businesses grow, they require more powerful tools for automation, control and documentation. Spreadsheets leave organizations at great risk of inaccuracies caused by human error, version control issues and limited automation and audit trail features. Software purpose-built for the financial close, like Trintech, automate time-consuming processes like transaction matching and exception management, provide built-in controls, approvals and audit logs. Financial close software scales with your organization as it grows and significantly reduces manual effort, improving overall accuracy in your reporting. While they do require investment, set up and training, the ROI of financial close software is often quick for organizations that take the time do properly implement these solutions.

How can reconciling accounts help detect fraud or financial misstatements?

Consistent reconciliation helps detect fraud by uncovering unauthorized transactions, highlighting duplicate or missing entries, exposing fake vendors or customers, detecting manipulation of records and ensuring the segregation of duties.

What controls should be in place for effective account reconciliation?

Strong internal controls ensure reconciliations are accurate, timely, and fraud resistant. Key controls include:

• Segregation of duties: ensures the person reconciling the accounts is not also handling cash or record transactions.
• Timely reconciliations: reconciling accounts monthly (at least) helps you catch errors early.
• Documentation retention: follow GAAP rules for keeping invoices, statements and reports as evidence.
• Review and approval process: ensure reconciliations are reviewed by a supervisor or manager.
• Standardized reconciliation templates: these ensure consistency of reporting processes across teams.
• Exception reporting: flag and track unresolved differences to ensure they don’t go overlooked.
• Access controls: teams should restrict who can edit reconciliation records to prevent fraud.

Check out our Finance & Accounting Glossary for answers to more of your questions relating to accounting processes and best practices.

 

Written by: Lindsay Rose