Almost every accountant and business owner have felt the frustration of finalizing a trial balance or financial statement, only to discover an error embedded in the numbers.
Often, it’s just a simple error that can be fixed with a correcting journal entry. Still, it’s much more efficient to catch errors early, and one way to do that is with account reconciliations.
Account reconciliations are a process of matching recorded transactions to information from an external source, such as a bank or loan statement, to see if there are any differences in the records.
This process allows you to spot discrepancies and make any necessary adjustments right away — before you finalize your trial balance or financial statements.
Below, you’ll find five best practices that can help improve your account reconciliation process.
1. Standardize the Reconciliation Process
Each time you or your team perform an account reconciliation, you should follow a standard set of steps to ensure all transactions are accurately recorded and properly documented.
If your reconciliation process isn’t standard, it’s tough to ensure reconciliations are done accurately each and every time.
For every account on your Balance Sheet, outline your standard reconciliation procedures and provide templates to follow.
This will reduce the possibility of missed steps or other mistakes that can impact the quality of your reconciliations.
2. Assign Responsibility and Accountability for Each Account Reconciliation
In most companies, one or more employees handle account reconciliations, and other team members or managers are responsible for reviewing and signing off on them.
If you have a large number of accounts and each reconciliation requires reviews and signoffs from multiple team members, it’s easy for something to fall through the cracks.
Assign responsibility for each account reconciliation to a specific person, hold them accountable for completing or reviewing the reconciliation on time, and have a system in place to track the status of each reconciliation.
When each member of your team has a crystal-clear understanding of which accounts they’re responsible for and when they are due, employees can focus on getting the work done rather than wasting time trying to figure out who should be working on what.
3. Provide Proper Training for Employees
Without proper training on what reconciliation entails and why it’s important, employees tend to go through the motions.
Often, these reconciliations just replicate the general ledger or are more of a roll forward, with no assessment of whether the changes were valid.
Train employees, so they’re clear on how a proper reconciliation should be done, so people don’t waste time on reconciliations that don’t actually assess the validity, correctness, and appropriateness of the account balance.
4. Automate the Reconciliation Process
The days of manually performing account reconciliations should be a thing of the past, yet according to Robert Half’s report, Benchmarking Accounting & Finance Functions, nearly half of U.S. companies (48%) don’t use any type of technology tool or system for reconciling their general ledger accounts.
Matching hundreds of transactions manually each month requires a significant amount of time, is highly error-prone, and can delay your close process.
Fortunately, account reconciliation software can handle most of the tedious, time-consuming work of creating account reconciliations and matching transactions.
This gives your team members more time to focus on unusual entries, detect errors, and bring more value to the business.
When you make the process less demanding for your team, they can perform reconciliations more often — perhaps even weekly — to ensure you always have a finger on the pulse of the organization’s health.
Automation can also lead to improved staff morale and a faster financial close without reducing accuracy or increasing risk.
5. Continuously Improve
Like any other process in your organization, your processes for account reconciliation should be regularly evaluated and improved over time.
Employee turnover, changing accounting standards, and new technological capabilities can all impact how the process needs to function.
Select metrics that can help measure the performance of your account reconciliation team and identify opportunities for improvement.
According to the Journal of Accountancy, some commonly used metrics include overdue reconciliations, material reconciling items, and completeness by person or department.
Based on these metrics, you can adjust the process as needed by reassigning certain reconciliations, changing the due dates, or working with your solution provider to make the process more efficient.
Continually fine-tuning your processes over time will help ensure that your accounting and finance department is prepared to adapt to organizational changes and stakeholder expectations, no matter how busy your department might be.
Final Word
Many accountants and business owners take account reconciliations for granted, but they’re a crucial part of the financial close.
By leveraging account reconciliation software these best practices, you and your team can sleep easier at night knowing that most accounting errors can be avoided or caught by account reconciliations.
This will make your financial statements more reliable and help your business function better, faster, and stronger.
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