Everything Account Reconciliation

Many accountants with extensive experience—those who are CPAs and worked multiple jobs in various roles—might never have done a reconciliation in their careers. I came across a social media post from a public accounting partner who was about to retire who had never done a bank reconciliation in his 30+ years of work. Most of the comments joked about how you can go years, or even your whole career, without knowing how to do reconciliations. 

What is account reconciliation and why is it important? 

Although some accounting professionals have never done a reconciliation, it is a vital part of keeping the financials accurate and complete. When you first think about reconciliations, your mind might go straight to bank reconciliations. While this is a part of the process, it’s just one part of the whole.   

There are many other accounts that must be reconciled on a recurring basis—not just the bank account. You might have thought that double-entry accounting must be the answer. Everything must reconcile automatically because debits must equal credits. So what is there to worry about?  

An inexperienced accountant might believe that if everything “ties,” then the financials are accurate. But here are some basic questions you need to think about when viewing the financials:  

  • What are expenses for?  
  • Was the expense approved by someone who has the right authority?  
  • Where is the documentation for that expense? 
  • Do all these assets still exist? 
  • Are our loan balances up to date? 

These are the questions reconciliations will answer.

How to reconcile accounts

You might have not done an account reconciliation at work, but you most likely do it in your everyday life by checking your bank account for unknown charges or seeing if the charges match your receipts. You’ve most likely seen timing differences with your personal reconciliation when you pay a bill. It shows as paid, but the money has not been removed from your checking account. If you don’t remember that the bill is pending, you could overestimate how much you have in the account, which can cause you to overdraft. The same things apply to businesses. 

The fundamental definition of accounting reconciliation is comparing two sets of records to ensure the financials are correct. The reason this must be done on a regular basis is to catch the errors that could be caused by timing differences, fraud and errors.  

An individual might be an experienced CPA at your company but might not be the best one to reconcile your accounts if they are unfamiliar with the transactions and the accounting software being used. Someone at your company should be dedicated to the reconciliation of the accounts. This person is most likely in the accounting department. 

All accounts in the balance sheet that have activity or have a balance should be reconciled on a regular basis. Profit and loss accounts like revenue and expenses are usually not reconciled. Depending on the size of the company and the number of accounts, reconciliation can be completed on a weekly, monthly, quarterly or annual basis. 

Account Reconciliation Example 

End of month can be a stressful and tedious for those accountants who are preparing closing entries and reconciling the financials. Luckily, there is software like NetClose that can help accountants get through this each month.  

Project management software can help segregate duties, track the progress of the close and automate the process of the monthly close. NetClose, especially, can reconcile supporting details with the transactions in the general ledger using existing details recorded in NetSuite by completing the entire reconciliation or creating a list of remaining transactions to investigate.  

Account reconciliation in NetClose

Bottom Line 

Account reconciliation is an essential part of a company’s operations and will help reduce errors and fraud within the company. Products like NetClose can help accountants with the stress of month-end and year-end entries and account reconciliation. 

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