What Accounts Should be Reconciled Monthly?
What accounts should be reconciled monthly, and why is it important in running businesses? This is a question that arises in an individual’s mind who is new to the business market. These terms are important in order to understand accounting basics and managing the financial stats of your business or at an individual level. In this article, we will understand what account reconciliation is, what accounts are reconciled, and what the process of account reconciliation is in the UK. Let us dive in deeper to learn about what accounts should be reconciled monthly.
Talk to one of our intelligent and clever professional bookkeepers to get your further queries about bookkeeping services in London. We will ensure to come up with the best possible solution for you.
What Accounts Should be Reconciled Monthly?
Generally, the period of account reconciliation depends upon the needs of the individual or business. It is better to do account reconciliation on a monthly basis. It is most beneficial for small or new businesses to check their growth rate on a monthly basis. Monthly account reconciliation allows payroll accounting, checking on internal and external expenses, and identifying drawbacks in company policy.
In account reconciliation, the balance of an account in two records is compared to ensure accounting accuracy. The account reconciliation is done to ensure that the account records conform with the general ledger. While reconciling, the transaction amounts in both records are entered as debit or credit. Like other accounting procedures, the account reconciliation is done periodically, i.e., on a daily, monthly, or yearly basis depending upon the needs of the individual or a company.
Visit our more detailed guide on what is bank reconciliation, we have covered in-depth knowledge of bank reconciliation over there.
What are the Types of Account Reconciliation?
There are two types of account reconciliation. Both are explained below.
1- Individual account reconciliation
In individual account reconciliation, people check their manually maintained records with their bank records to keep a check on their financial stats. This depends upon the needs of the individual to have a check on his account records. Most people do it on a monthly or yearly basis.
2- Business account reconciliation
In business account reconciliation, companies have accountants to reconcile their account register with the bank records or other online transactions. At the end of each reconciliation session, the bank statement should match with the accounting ledger of the company.
What is Reconciling to External Documentation?
In reconciling external documentation, the internal account information is compared with external documentation. This type of reconciliation ensures that bank account information conforms to the external documentation record available at the office. Sometimes the data in both records doesn’t match; that could be due to outstanding bank cheques, incorrect data entry, or some bank charges.
A comparison of both records allows companies to remove the discrepancies for smooth running of business and future planning accordingly. This type of reconciliation involves a comparison of balance records. The balance inquiry may involve bank balance, shareholders (accounts and their detail of capital exchange with the company), investments, or any advance payments by the company.
Why is the General Ledger Important in this Regard?
The general ledger is of prime importance in accounting practices. The general ledger allows accountants to compare account records and ensure all the entries in the debit and credit section are aligned. At the end of general ledger reconciliation, accountants are able to pinpoint errors and any fraudulent transactions. The general ledger helps businesses in maintaining financial statements and balance sheets.
What are the Steps of Account Reconciliation?
Account reconciliation can be done
- Manually: By accountants of a company or an individual for his own record.
- Automated: Nowadays, automated software is available and mostly used by businesses to reconcile accounts and manage their company data and assets.
The steps followed in both methods are explained below
1- Obtain records
Obtain the records from the bank account on a monthly basis and maintain the manual accounts register on a monthly basis. Obtaining and updating records is essential in the manual method as well as in automated accounting software.
2- Balance alignment:
Compare the balances in both records. Compare the debit and credit columns of the records and don’t forget to look for human error in the entries. The chance of human error is undeniable.
3- Error identification
Compare and identify errors in the records. Check the reason for errors. There may be error due to some unprocessed transactions, bank fee charges and uncleared payments
4- Adjust the discrepancies
Adjust the errors in the record by deducting bank fee charges, any tax amount applicable, or transfer fees where applicable. If the error is found in the external account reconciliation document, you need to contact the statement provider to rectify the wrong error.
The Bottom Line
In conclusion, knowing what accounts should be reconciled monthly is essential for businesses and individuals as well. Hiring accountants or doing it through an automated software allows financial asset management, check shareholder assets, check liability, look for errors in payment and transaction and any advancements made or payment that are due on an individual or company. Monthly account reconciliation is easier than done on yearly basis as it allows quick account reconciliation due to less amount of data to be checked.
Disclaimer: All the information provided in this article on what accounts should be reconciled monthly, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.