If there’s one universal truth to any type of system, it’s that no matter how careful or meticulous you are, mistakes are going to be made. 

Luckily, in the world of accounting, fixing those mistakes is easy, as long as you can find them by your month-end close deadline. That’s why adjustments and reclassifications were created, after all. 

When you’re working with a manual process for your month-end close process, the odds of making a mistake aren’t just increased. They are inherent to the close process. Manual accounting practices don’t provide you with the accuracy, visibility, or timeliness to identify and resolve the discrepancies that jeopardize your monthly closing process.

How Do Discrepancies in the Financial Close Process Occur?

The biggest challenge to the accuracy of your financial close is the sheer number of discrepancies you come across each month. When comparing your sales numbers and your bank records, the best thing you can hope for is one-to-one transactions. However, new payment services, payment types, and fees can give you a difficult time balancing the point of sale with the actual financial transaction. 

If you think retail or food services are the only places you might come across these types of discrepancies, you might be surprised that other industries such as health and wellness face this challenge, too. A dental office has to process both insurance and patient payments to settle a single invoice, resulting in multiple payment amounts and payment types to settle one transaction. 

Learn how financial and accounting teams across all industries have tackled obstacles throughout the past year in our 2021 Global Financial Close Report.

What are Adjustments & Reclassifications in the Month-End Close Process?

The best way to handle a discrepancy is to take the time to research it and determine exactly what it is, what account it’s for, and the best way to reconcile it. This is what is commonly referred to as adjustments and reclassifications.

Adjustments are when you have transactions that don’t line up one-to-one between the point of sale and the bank statement. 

Here are a couple of examples:

• Your customer orders food from your restaurant through UberEATS®, which charges a 3% service fee. However, there was a system glitch and UberEATS® actually charged you 6%. That additional 3% discrepancy isn’t going to line up with your numbers so you’ll need to manually adjust this in your spreadsheet before you close. 
• Your customer paid for a sweater and walked out the door of your retail establishment. After he/she walks out, you realize the charge didn’t go through for whatever reason. Since you no longer have the sweater, you have to make an adjustment to account for this loss in inventory.

Reclassifications are when you have to make adjustments to transactions after you’ve already reconciled them and completed your month-end close. 

The Impact of Discrepancies on Your Manual Month-End Close

Manual month-end close is often ripe with discrepancies. Without automation, you’re working with complex accounting spreadsheets filled with multiple pivot tables and mathematical formulas that have to be manually input and adjusted for each payment type and provider. This requires a manual process to identify:

• The data type
• Who sent it in
• The rules associated with it
• Where it needs to be added

Identifying the discrepancies from each disparate system and manually adding them to a spreadsheet can be frustrating, time-consuming, and repetitive. This can take a lot of time away from your team as they attempt to reconcile each transaction before the end of the financial close. Considering that the clock never stops and you’re always moving from one financial close cycle to the next, you don’t have a lot of time to waste on investigating every discrepancy that falls out of your spreadsheet.

The problem is only compounded if you have to notify an e-commerce vendor of the discrepancy and ask them to assist you. They have their timetables to consider and you probably aren’t one of their priorities. So your monthly financials are closed and you’re forced to file reclassifications once the vendor responds. While this may not seem like anything more than an annoyance at the time, reclassifications raise a lot of red flags for auditors when they show up to perform a bank audit.

How Automation Helps You Reconcile More Discrepancies Faster

With software that supports automation, you spend less time collecting discrepancies and more time resolving them. Instead of checking pivot tables, cross-checking data points, and confirming transactions were typed in correctly, you go straight to resolving exceptions. Also, since you’re able to start reconciling discrepancies sooner, you give your vendors more time to process things on their end, too. 

Establish repeatable, definable rules that consistently identify your incoming data and instantly inputs it where it needs to be. 

Whenever you get a new e-commerce vendor, you can build new rules to account for:

• Payment processing
• Fee structure
• Payment timelines

While reconciling individual discrepancies helps you close your month-end close cycle quicker, being able to view everything in a configurable dashboard lets you see patterns in your month-end close. This lets you determine the best way to counter such as switching payment providers or vendors if they’re too inconsistent or cost too much money.

To learn more about how automation in the cloud can give your team the time they need to form insights about the future of your organization, sign up for our free webinar: 6 Reasons Why Cloud-Based Software Is Critical To Your Financial Close Success.

Adra Can Help You Close More Efficiently

A manual close can be incredibly frustrating and repetitive work. Your accountants didn’t go to college to stare at spreadsheets all day. 

They want to make a difference for you, your company, and your customers — something they have a hard time doing if they’re focusing all their energy on completing a spreadsheet by a predetermined cutoff date. 

The Adra Suite of financial close solutions was developed to take your workflow processes and strengthen them through automation. In many cases, you can simply set it and forget it as the accounting automation does the heavy lifting to process your reconciliations. 

Adra can also provide you with more visibility into your finances with: 

• Real-time numbers so you can quickly identify discrepancies and reconcile them without adjustments or reclassifications.
• Tag accounts that need priority reviews. 
• Set notifications to alert you if consistent accounts are suddenly in flux. 

Isn’t it time for you to reduce the discrepancies forcing your accounting team to spend all their time reconciling accounts with adjustments and reclassifications? Book an Adra demo and let us show you what automation can do for you.