Eada Hudes
Author
Account statement reconciliation can be safely assumed to be one of the integral parts of the backbone of a running business and its financial management. However, maintaining and preparing complete documents such as supplier statement comparison reports can become tedious. It is imperative that they are accurate and complete.
There are a multitude of commonly used control and verification methods to ensure account comparisons are made properly. One of the most basic and essential ways of doing this is known as account statement reconciliation.
Account statement reconciliation compares two sets of Records and analyzes the difference between them if any. Now, these records can be anything from the entire spectrum of account records.
Generally, one record set is a ledger from the company’s books, which needs to be reconciled, and the second set is obtained from internal and external sources.
Let’s look at the different types of reconciliation processes.
5 types of statement reconciliations & why they’re important. Source: pexels.com
Types of Account Reconciliations
- The most common reconciliation process is found to be in the banking industry. It’s straightforwardly known as a bank reconciliation statement. Generally, these statements are processed and prepared in regard to the transactions in the bank statements with respect to those in the customers’ ledgers.
- Another common scenario where reconciliation statements are relied upon is businesses, especially those that manage a ton of inventory. A supplier statement reconciliation is basically prepared to make sure that the accounting entries recorded in APs and ARs of the supplier match up with the accounting records entered in either party’s ledgers.
- Next, we have customer statement reconciliations. These can be very much like supplier or vendor statement reconciliation processes. They basically make sure or solve errors when comparing the ledgers of the customers to that of the supplier or the respective company from which they made purchases. The majority of companies first prefer to prioritize and resolve customer statement reconciliation over supplier reconciliations. Obviously, the reason is money is receivable with the customer but payable to the vendors. Corporations generally lean towards clearing dues before worrying about payments.
- Further, we have intercompany reconciliation. Enterprises that are of huge sizes, such as conglomerates, holding, and subsidiaries, proactively prepare and resolve issues to streamline and keep the financials up to date and free from legal or other kinds of trouble. For instance, during the legal proceedings of a merger or acquisition, the company’s books play a huge role in facilitating the movements and need to be flawless for successfully completing such major business decisions.
- Finally, we have what is generally known as business-specific reconciliation. Every business is required to prepare more than one reconciliation process mentioned above. It’s more of a general representation of collective reports that hold comparison and discrepancy history or data.
For instance, there is the cost of goods purchased or sold reconciliation. This reconciliation process does not apply to the service industry as they do not hold inventory. However, it is imperative for a business that holds a ton of inventory.
Takeaway
Statement reconciliations are generally performed prior to the closing of accounts. It is recommended that you carry out the same every month to avoid backlogs or build-up inquiries that can prove to be difficult to handle. They can also be done on a quarterly or maybe on an annual basis. Doing so will help you keep the accounts up to date and free of error build-ups.
Also, reconciliation acts as a shield from financial fraud to an extent. Sometimes people tend to manipulate the accounts within the company to skim money. Reconciliation can help detect such fraud.
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