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Understanding Reconciliation and Why It Is Important


Reconciliation is a natural account process that ensures the actual money spent matches the money leaving an account at the end of an accounting period. This is very crucial for businesses and individuals to keep a track of their finances any inspect false activity or financial statement errors.

What are the types of reconciliations?

  • Bank Reconciliation.

Bank reconciliation is the process of matching your bank statements with your bookkeeping records for a particular accounting period and recording the discrepancies. Bank reconciliations may be tedious, but financial hygiene will pay off. Here’s why it’s a great idea to do them.

  • To see your business as it really is
  • To track cash flow
  • To detect fraud
  • To detect bank errors
  • To stay on top of accounts receivable
  • Vendor Reconciliation.

Vendor reconciliation is the process of matching Company payable to vendor a/c balance & vendor outstanding balance and recording the discrepancies. It is reconciled from both account balance company and vendor. If there is any advance to the vendor, it will reduce the balance from the company payable amount. Reconciling your vendor statements allows you to ensure that there are no mistakes or inaccuracies between what the vendor is charging you and the inventory, services, or supplies you received. Statements typically arrive around the same time each month.

  • Customer Reconciliation.

Customer Reconciliation is the process of comparing the outstanding customer balance or bills to the accounts receivable as recorded in the general ledger. The customer reconciliation is a part of accounts closing activity and is usually conducted at the month-end before issuance of monthly financial statements.

  • Inter-company Reconciliation.

Intercompany Reconciliations. IC reconciliation is when two branches of a parent company reconcile figures as a result of engaging in a transaction. One child company is the seller to the other child company is the purchaser.

Reasons for intercompany reconciliations

To ensure a true representation of the consolidated financial position and performance of the group, intercompany transactions and balances should be properly eliminated in the group’s financial statements.

This all may be a little difficult to understand but Reconciliation is the normal process that takes place in every business large or small or in any industry. Earlier it used to be tedious and error-prone but the process is simplified a lot in recent days. The manual process of matching records in spreadsheets is now replaced by sophisticated tools and automation to handle the reconciliations quickly and error-free. After all, the word reconciliation means bringing together! It can be anything, relations, or transactions!

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