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What Does Accounts Receivable Reconciliation Entail?

Whiz Consulting
What Does Accounts Receivable Reconciliation Entail?

Every scale of business requires accounts receivable reconciliation for its processes. Accounts reconciliation involves matching the payments and receivables with figures in the books. It gives a chance to the company to detect any fraud and mitigate potential errors. Usually, businesses conduct this activity quarterly or monthly as a standard accounting procedure. It reduces the chances of disputes and acts as evidence for future issues. The payment process becomes smooth and seamless. There are no risks and noncompliance with regular reconciliation services.

Sources of accounts receivable reconciliation

General Ledger:

A general ledger maintains all the receivable transactions for a specific period. During reconciliation, the accountant uses the total of accounts in the general ledger. It allows for the detection of errors early. 

Detail of receivables: 

The subsidiary sales ledger records the unpaid bill that should match the sum of the general ledger. For the accounts receivable reconciliation process, accountants print the previous AR reports.

Possible loopholes in reconciliation 

  • There might be a missed entry in either the general ledger or subsidiary sales ledger. 
  • Entry recorded in any other account than the receivables 
  • Differences in the date of receivables report

These errors can prompt differences in the accounts and reflect material flaws in accounts receivable reconciliation. After identifying the errors, reconcile the balance by making entries in the legit accounts. For audit purposes, leave a brief detail of the transaction. You can also try to reverse the invalid entry and make a new one for easy tracking.

Importance of accounts receivable reconciliation

Accounts receivable reconciliation clarifies what your customer owes and the entry recorded in the ledger. It renders the accounts clean and auditable. The process details each transaction and verifies every credit memo. It helps in maintaining healthy relations with the customers by removing misunderstandings.

Process of accounts receivable reconciliation: 

  1. Keep your accounts updated with all the transactions of that period. It will allow the identification of errors regularly. 
  2. You should run an aged trial balance report. It will show the unpaid balance of that particular period. 
  3. Maintain the general ledger report till the last day for maximum efficiency. 
  4. Identify the variances in the AR report and AR balance. 
  5. Correct the deviations by making adjustments wherever necessary. It may be a wrongful deduction or a missed entry.

Why should businesses reconcile? 

  • Fraud identification: Monthly checking of accounts allows identification of any unauthorized transactions. Such dealings can cause massive losses to the company if not corrected on time. 
  • Errors in data entry: There are various possibilities of discrepancies in entering the data into accounts. Through reconciliation, the company can keep the irregularities in check. Examples of such errors include the wrong amount, duplicate entries, etc. 
  • Accuracy: The financial statements become accurate when they are error-free. Match your accounts regularly to ensure that the financial statements depict the true picture. 
  • Tax compliance: The tax return will be correct only when the data used to derive it is reliable. Therefore, there should be no errors in financial statements for calculating taxes. 
  • Customer relation: When your accounts are full of discrepancies, you might disturb your customers regularly. It can irritate them. Reconciliation helps in avoiding such situations. It promotes a healthy relationship by removing misunderstandings.

Handling all these processes can be challenging for a firm. Bookkeeping services which include accounts reconciliation, can help the firm tackle such situations without any hassle. You can also outsource other bookkeeping services such as payroll processing outsourcing, accounts payable outsourcing, accounts receivable outsourcing, among others. 

Whiz Consulting
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