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Why Reconciliation is Necessary for Bookkeeping and Accounting

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Why Reconciliation is Necessary for Bookkeeping and Accounting

It’s common knowledge that bookkeeping and accounting are necessary for anyone who wants to keep track of their money. The ability to accurately sum up transactions and accounts at a glance is essential in business, whether you are a small company or a global corporation. Moreover, keeping good bookkeeping and accounting records can also help to prevent fraud. Therefore, it is important to conduct accounts reconciliation to ensure no mistakes and gaps in the financial records. Let us learn more about accounts reconciliation and its importance for business bookkeeping and accounting.


What is Reconciliation?


Accounts reconciliation is the process of reconciling a company’s various accounts. These are all recorded in a company’s books and records. A company may use reconciliation to identify any discrepancies or errors in its books and adjust its books in response to changes in circumstances.


Why is Reconciliation Necessary for Bookkeeping and Accounting?


Because bookkeeping and accounting are necessary steps to operate a business, it’s wise to keep track of your expenses and income in your books and records at a granular level. Accountants use reconciliation to ensure they have all the information they need to keep their books in order. If they have access to your accounts and records, they can look behind your numbers to see what was bought with your money and subtract from your income to arrive at an actual income number. The following reasons are why you should regularly reconcile your books:

·       You need to know your total income and expenses to ensure you’re reporting real income and expenses. 

·       It’s critical to conduct business accurately. If you have to pay the IRS, you don’t want to miss a payment and get in trouble for it. 

·       You must ensure you have all the information you need for your tax return.


How does Accounts Reconciliation Work?


Rolling schedules are maintained for specific accounts by comparing general ledger account balances to supporting sets of records and bank statements and keeping track of starting balances, additions, reductions, and ending balances. Some of the types of balance sheet reconciliations that are necessary for accurate bookkeeping and accounting include:

·       Accounts receivable reconciliation

·       Inventory reconciliation

·       Assets reconciliation

·       Accounts payable reconciliation

·       Cash and bank account reconciliation

·       Liabilities reconciliation


Common Accounts Reconciliation Discrepancies


Some of the most common accounts reconciliation discrepancies are the timing of recording transactions to the general ledger and missing and overdue transactions. Mistakes in business sub-ledger journal entries can also result in discrepancies. For example, recording an asset as an expense in the detailed subsidiary journal results in duplicate entries.


Conclusion


Now that you have an idea of what reconciliation is and what kinds of books you will likely keep, it is time to get started on the process of reconciling your books. This may seem daunting, but it is not that different from managing any other accounting function. However, it is important to be diligent while conducting reconciliation to maintain the process’s reliability and the business’s books of accounts.  


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