How to Do Creditors Reconciliation?

Periodic conduction of accounting procedures is essential for maintaining the financial records of businesses. The accounting procedures ensure the transparency of the company’s transactions and payments. Bank reconciliation is a top priority among crucial accounting and bookkeeping procedures. Bank reconciliation involves creditor reconciliation, a crucial step to reconcile creditor account details with company records. This article guides you on how to do creditors reconciliation.

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How Do You Do Creditors Reconciliation?

In bank reconciliation, creditor reconciliation is the process of comparing the creditor account to the monthly financial statement received from the creditor account. At the end of creditor reconciliation, the end amount should be the same.

Reconciling The Creditors Ledger Account and Monthly Statement

The financial statement of the transactions from the creditor account is received every month. The bank statement shows the monthly record of transactions. The creditor bank statement is compared to the creditor ledger to match the details of invoices and transactions done through the creditor account. The following steps are followed to do creditor reconciliation.

• The first step is to compare the entries on the monthly statement against the creditor ledger in the company record
• The debit column in the statement is compared to the credit column of the creditor ledger. The credit column of the statement is compared to the debit column of the creditor ledger.
• If there is any discrepancy in the entries, like an incorrect entry, duplication, or any missed entry, adjustments should be made to rectify the mistakes.
• If the mistakes are found on the creditor’s behalf, then the business must inform the creditor to correct the mistakes.
• At the end of creditor reconciliation, the balance in both records should match.

 If the Creditor’s Account Does Not Match the Creditor’s Statement

The below points should be kept in mind while reconciling the bank statement and creditor ledger.

1. Invoices omitted/entered incorrectly in the ledger or bank statement.
2. Credit/debit entries omitted or entered incorrectly in the ledger or bank statement.
3. Incorrect amounts of payments or discounts are entered in the records; for example, R54 is replaced with R45 in the creditor ledger.
4. There are miscalculations or mathematical errors in the creditor ledger
5. All transactions are not recorded according to the correct date, or some are omitted.
6. The creditor statement is prepared by the accounts department without adding the direct bank transfers.
7. There is a difference in the date of the transaction and that mentioned on the creditor ledger.
8. Interest charged by the creditor is not added to the total amount.

If the bank statement and creditor ledger contain such mistakes, it induces the need for account reconciliation. The reconciliation should result in the same balance on the credit ledger and bank statement after necessary adjustments and corrections to both records.

Visit our more detailed guide on what is debtors reconciliation, we have covered in-depth knowledge of debtors reconciliation over there.

The Importance of Creditor Reconciliation

Regular periodic conduction of creditor reconciliation is essential for smooth cash flow and transparency in businesses. Below are some of the reasons for creditor reconciliation

1- Accuracy of Financial Records

The creditor reconciliation involves a comparison of entries in the bank statement and creditor reconciliation. This ensures the accuracy of the financial records of the company, such as invoices, statements, and payment receipts. The reconciliation process also keeps track of the company’s compliance with the business rules defined by the Companies House and timely reporting of tax returns.

2- Detection of Errors and Fraud

The reconciliations help to identify discrepancies and errors in the records. The errors indicate the mismanagement of records by the accounts office staff, any fraud activity by the staff, or errors in internal or external documentation. Early detection of such errors can be achieved by doing the creditor reconciliation weekly or monthly.

3- Timely Collection and Payment Management

The creditor reconciliations ensure that payments are made to suppliers on time and the amount transferred is accurate. The reconciliation process avoids late payment by the creditor or the company staff; this will avoid penalties on either of the parties, thus maintaining positive relationships.

4- Cash Flow Management

Accurate assessment of the reconciliation process leads to smooth cash flow in the company. Accurate tracking of receivables and payables by the company forecasts the financial status of the company, thus helping in designing future business policies. Cash flow tracking also helps in negotiating short-term or long-term investments by the company.

Conclusion

The creditors reconciliation is the process of comparing bank statements and creditor ledger entries. The date and number of transactions are compared to ensure the accuracy of financial records. The reconciliation process is done regularly for accurate management of records. Creditor reconciliation leads to the identification of errors in entries, thus helping in managing cash flow. This also helps in designing future long-term or short-term investment policies for the company. Consequently, creditor reconciliation is crucial for the growth and progress of the business.

Disclaimer: All the information provided in this article on how to do creditors reconciliation, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.