How Does Automated Reconciliation Work?

By Author: David Brown
Total Articles: 21
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Accounts reconciliation is a process through which firms detect errors, discrepancies, variations, and gaps in their accounts to rectify them as soon as possible. It is essential to undertake for every firm practicing accounting and bookkeeping. Errors can be of the following types:

Errors of omission: It means missing an entry- for example, forgetting to generate an invoice or recording a purchase, etc. 

Errors of commission: It involves making a mistake in the value entered—for example- $59 instead of $95. 

Errors of principle: When you enter the amount in a wrong account because of a lack of knowledge in accounting principles, such as entering cash sales into credit, it becomes an error of principle. 

Compensating errors: When you make a mistake, but it gets compensated with another mistake, it becomes a compensating error- for example, crediting $5000 as income when it is an expense and debiting the exact amount received from the sale of goods as an expense.

Several other errors can diminish the quality of accounts and pose a problem in preparing financial statements, ...
... tax calculations, and auditing. In such cases, a firm must practice accounts reconciliation periodically to enhance the accuracy of its files. A firm can consider an in-house accountant or an outsourcing company to undertake reconciliation. Its process includes two methods:

Analytics review:

This method allows businesses to spot inconsistencies in accounts quickly. It uses historical estimates and accounting levels to predict the current amount. It provides an estimation of errors or theft in the balance sheet. For example- estimating bad debts and creating a provision accordingly. 

Documentation review:

It is the most commonly used method where documents get evaluated thoroughly. It involves matching transactions recorded in an internally prepared book with an external statement. For example, checking incomes and expenses with the bank statement. 

Both automated and manual financial accounting reconciliation follow the following steps:

Compiling data and comparing:

Before beginning with accounts reconciliation, gather the data from different sources. For example- if you want to conduct bank reconciliation, you will require bank statements and a general ledger. You will have to compare the transactions recorded in both and identify discrepancies for rectification. In automated processes, you can import bank statements automatically, and the software will alert you for any variations. 

Check your outgoing funds:

Sometimes, the variations in ending bank balance come from bank charges that get deducted in the bank account but do not get reflected in the company's books. It may be because you forgot or did not know about such fees. Compare and rectify these mistakes, if any, in the reconciliation of your accounts. 

Examine incoming money:

Sometimes businesses deposit money in the account and record it in the books. But, the bank does not acknowledge or record this amount in its statements. In such cases, there will be discrepancies you will have to rectify. Also, you might want to add the interest received by the bank in your books while conducting accounts reconciliation. 

Bank errors:

Although rare, there may be issues in the bank statement from the bank's side. You must identify and alert your bank about the same. 

Complete reconciliation:

After identifying the errors in accounts reconciliation, record them separately for future reference and rectify them in your records to keep them accurate. Automation makes it easy to store the edits and provides a reconciliation report whenever required.
Read More : https://www.whizconsulting.net/us/services/accounts-reconciliation-services/

We at Whiz Consulting always strive to provide what’s best for our clients. From accounting & bookkeeping services to payroll and taxation, we offer everything a business owner might need to run his business successfully. Our team of expert outsourcing accountants and bookkeepers help you handle your finances without any hassle.