This reconciliation involves rolling forward fixed asset balances, accounting for purchases, sales, retirements, and accumulated depreciation. It makes sure that fixed asset and accumulated depreciation balances accurately offset each other in the general ledger. While scrutinizing the records, the company finds that the rental expenses for its premises were double-charged. The company lodges a complaint with the landlord and is reimbursed the overcharged amount.

Documentation Review

Duplicate checks, unauthorized credit card activity, or altered invoices are some common practices that can be identified through account reconciliation. For example, a grocery store dealing with daily cash transactions relies on daily cash reconciliations to manage cash flow effectively. In contrast, a consulting firm may find that monthly reconciliations for invoices and expenses are enough. Meanwhile, a construction company dealing with equipment and material costs may choose quarterly reconciliations to guarantee their financial processes operate smoothly. Account reconciliations should be performed regularly, ideally monthly, to ensure financial records are accurate and up-to-date.

How Precision Neuroscience streamlined systems and slashed data entry with Ramp

In the double-entry accounting process, all transactions get posted as both debits and credits. Individuals could also use the process to verify the accuracy of their banking and credit card accounts. For example, while performing an account reconciliation for a cash account, it may be noted that the general ledger balance is $249,000. Still, the supporting documentation (i.e., a bank statement) says the bank account has a balance of $249,900.

After scrutinizing the account, the accountant detects an accounting error that omitted a zero when recording entries. Rectifying the error brings the current revenue to $90 million, which is relatively close to the projection. By taking advantage of technology and automation in this way, you can save time and avoid duplicate data entry errors. The type of industry tends to determine the specifics related to this reconciliation. For instance, financial organisations often need to carry out the process more often than others. A company would then be able to put right any mistakes in its financial statement.

In fact, most jurisdictions have requirements for trust account reconciliation. For example, you may need to reconcile your trust account bank statement with client balances at a specific frequency, such as monthly or quarterly. One account will get a debit, and the other account will receive a credit for the same transaction.

The company’s current revenue is $9 million, which is way too low compared to the company’s projection. For example, a company can estimate the amount of expected bad debts in the receivable account to see if it is close absorption vs variable costing to the balance in the allowance for doubtful accounts. The expected bad debts are estimated based on the historical activity levels of the bad debts allowance. To implement effective reconciliation processes, you need to create and document the exact procedures that staff and lawyers should follow.

Streamlining the reconciliation process

1. While proper reconciliation is the standard for how law firms should handle all financial accounts, it is particularly important—and often required—for the management of trust accounts.
2. However, you need to record financial transactions throughout the year in the general ledger to be able to put together the balance sheet.
3. Rectifying the bank errors bring the bank statement balance and the cash book balance into an agreement.
4. The individual is reimbursed for the incorrect charges, the card is canceled, and the fraudulent activity stopped.

Once the individual client ledgers and the firm’s trust account ledger are aligned, you can then reconcile the client ledgers and trust account ledgers with your trust bank account statement. The goal of bank reconciliation is to check that ending balances match on both your bank statement and your records. Should there be any discrepancies that come up through the reconciliation process, you can then take action to resolve them. As a result, the accounting industry has sought ways to automate a previously strenuous manual process.

It adheres to accrual accounting principles and reconciles balances for credit card statements to the appropriate payables account. Accountants typically perform an account reconciliation for all their asset, liability, and equity accounts. This process involves reconciling credit card transactions, accounts payable, accounts receivable, payroll, fixed assets, and subscriptions to ensure that all are properly accounted for and balanced.