What is reconciliation in accounting, and why is it essential?

Reconciliation can be quite a tedious process, but it is crucial to all aspects of accountancy. Essentially, it is the process that compares two sets of records, checking that figures are correct and in agreement. Reconciliation fundamentally ensures that everything adds up, so to speak.

Businesses need to ensure the validity of their transactions, as well as the accuracy of company accounts, reconciling and confirming balances. While there are many effective methods for keeping your monthly financials up to date, reconciliation is almost certainly the most important aspect that you really cannot afford to ignore.

What is good reconciliation?

In order to turn a profit and grow as a business, keeping an eye on the monthly cash flow is essential, with reconciliation forming a huge part of that. The first point to remember is that reconciliation should paint a picture of what is in an account at that moment in time. Make sure you have the right documentation in relation to the timing of the funds clearing.

The next key is accuracy – make sure the person responsible for reconciliation has a solid understanding of the purpose of the account and is reliably informed. Having a system in place will also ensure timeliness, with an ability to track the status of all reconciliations. Your process should also be under constant review as to how improvements can be made. You can always be that little bit more accurate and efficient. Companies like Xelix can even use AI to protect from hidden threats, minimising risk in the process.

Mistakes to avoid

Making mistakes is a natural part of life, but accounting is probably among the worst professions in which to make a mistake. Of course, errors are entirely natural, but ensuring they are kept to a minimum demonstrates a good reconciliation process.

They say a bad worker always blames their tools, but poor tools and processes are the scourge of a good reconciliation process. If the tools available aren’t suitable for the high-speed internet age, then they are redundant. Try to reduce your paper output too – advances in technology mean we no longer need the Amazon rainforest to occupy our filing cabinets.

Paper records in the modern workplace are essentially part of a redundant practice, but these redundant practices can still be found within the technological aspects of your accounting reconciliation processes. If your technology isn’t streamline, then your employees could find themselves jumping back and forth awkwardly between several differing applications. Stop and think – is there a way for those processes to encompass a single application instead?

Though most companies use Excel, it may be time to move past that as a means of reconciliation, as it lacks the validating software that some of its more contemporary counterparts have. A spreadsheet only needs one small error in order for the entire document to be invalidated, so you’re already giving yourself additional work and stress at the mere possibility of invalidated books.

Final thoughts

Overall, your reconciliation processes need to be accurate, up-to-date, constantly under review, timely, and ultimately beneficial, by providing the valuable information you need to keep your bottom line healthy.