Benefits of Reconciliation in Accounting

Benefits of Reconciliation in Accounting

What is Reconciliation?

Reconciliation is the process of ensuring the actual money that is spent or earned matches the money entering or leaving the account over a specific time period by comparing ledgers and bank statements. The business owners or their accountants need to make sure that the correct balances are recorded in their accounts. It helps the business owners to keep their finances intact and helps them understand the financial position of their company to forecast a better cash flow.

Reconciliation basically needs two sets of data to compare. In most cases the first one is created by the business which includes their income and expense, The second data is created by a third party like banks, customers, or suppliers. Both of these data should be reconciled to ensure the values on both sides match. 

Account ledger shows the amount of money your business should have whereas the bank statement shows the money you actually have as it includes all the data of all the income and expenses incurred over a specific period.

Reconciliation should be done on a regular basis to identify fraudulent activities or errors in the accounts. These minor disparities can cause huge problems while preparing the taxes. Reconciliations are mostly done at regular intervals like monthly or quarterly based on the business. The main aim of reconciliation is to balance the recorded balance in the ledger matches the bank statement

 

Benefits of reconciliation in accounting

  • Accurate ledgers

Reconciliations play a huge part in eliminating errors in the financial statement. It keeps the books and bank statements balanced that helps the business to analyze its performance for the past year.

  • To eliminate fraudulent activities

It allows businesses to check for any fraudulent activities that affect finances. It checks for unauthorized payments, legitimacy of checks, unauthorized bank transactions, etc.

  • Monitor Bookkeeping

The chances of making mistakes while entering a large number of transactions can cause errors. Reconciling your transactions will help you identify errors like entering wrong amounts, duplicate entries, and much more.

  • Accurate tax reporting.

An accurate financial statement is essential for preparing tax returns. All transactions should be reconciled to ensure maximum accuracy before filing.

  • Control theft.

Reconcile your accounts to ensure you have full control over your accounts and your employees or anyone else is not stealing from you.

 

Reconciliation will help you unidentified or missing transactions that might be caused by accounting errors or fraud. Hence verifying each transaction and matching the ledgers and expenses is one of the major parts of accounting

Our Accountants are experts in reconciling accounts and eliminating maximum errors. Outsource your accounting needs to Agile e-platform to improve the financial health of your company

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