When reconciling an account, whether it’s a bank account or another financial record, the process generally involves several key things.
Here’s a list of things you typically do when reconciling an account:
1. Data Gathering
Data gathering involves collecting relevant financial data, statements, and transaction records from various sources, such as bank statements, ledgers, and internal records.
2. Transaction Comparison
This phase involves a detailed examination of transactions recorded in the company’s books with those reported by external entities, such as banks.
Discrepancies may surface during this comparison.
3. Tick and Tie
Accountants “tick” or mark off individual transactions on both sides of the reconciliation, ensuring that each item corresponds correctly between the company’s records and external statements.
4. Discrepancy Identification
Any disparities or differences found during the comparison are flagged as discrepancies.
These could be errors, omissions, or mismatches that need further investigation.
5. Discrepancy Investigation
Accountants delve deeper into identified discrepancies to determine the root cause.
This involves tracing transactions, verifying data accuracy, and ensuring that entries were recorded correctly.
6. Adjustments
Based on the findings during the investigation, adjustments may be necessary to correct errors or misclassifications in the company’s records to align them with external statements.
7. Outstanding Items Consideration
Any unresolved items or differences that persist after adjustments are categorized as outstanding items.
These are noted for further investigation or clarification.
8. Utilize Reconciliation Tools
Accountants may employ specialized tools or software to streamline and automate the reconciliation process, ensuring accuracy and efficiency.
9. Balance Confirmation
Confirmation with external parties, such as banks or creditors, may be required to validate the accuracy of reported balances and transactions.
10. Documentation
Comprehensive documentation of the reconciliation process, including supporting evidence, is crucial for audit purposes and to maintain a transparent financial record.
11 Final Review
A thorough review of the entire reconciliation process is conducted to ensure that all adjustments and corrections have been appropriately made, and the accounts are in agreement.
12. Reconciliation Statement Preparation
A formal document summarizing the reconciliation process, adjustments, and final balances is prepared.
This statement provides a clear overview of the financial position.
13. Approval Process
Depending on the organizational structure, the reconciliation statement may need approval from higher management or designated personnel before being considered final and accurate.
14. Follow-Up Actions
Any outstanding issues or recommendations identified during the reconciliation process are addressed, and necessary actions are taken to prevent similar discrepancies in the future.
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