How Do the Accountants Reconcile the Accounts?

Accounting is not all about recording business transactions. After the accountants have recorded the transactions, they need to carry out a lot of steps to make sure that the amounts are accurate. Checking the information that they have keyed in is crucial as this makes sure that the financial statements generated by using that information can reflect the financial position of the business accurately. Thus, to ensure that the ending balances of the accounts are correct, the accountants all over the world, including those in the accounting firms in Johor Bahru, will perform the reconciliation of accounts.

To reconcile the accounts, the accountants will firstly collect the bank statement and check whether the records in the statement can match the company’s cash book. If the accountants found out that a transaction has appeared in the bank statement without showing up in the cash book, they will highlight it. They will also check whether all the business transactions have related supporting documents, for example, invoices. Note that the ending balance of the company’s bank statement should match with its cash book ending balances.

Sometimes, the balance of the bank statement may be lesser than that of the cash book. If this happens, the accountants will try to find out the reasons. This can be due to the deductions that the bank has made. For example, the bank may have charged some fees for current account or withdrawals. If these amounts do not appear in the cash book, the accountants will add them in. Also, if the company has received some interests from the bank for the cash that it has deposited in the bank account, the accountant will include it in the cash book too. In some cases, the bank may charge some fees to the company wrongly, and what the accountants will do is to communicate with the bank about the issue. They need to follow up properly until the problem is solved.

Now, here comes the last step, that is to match the ending balances of the bank statement and the cash book. After making all the adjustments, the ending balances of the bank statement and the cash book should tally. Then, the accountants will generate the bank reconciliation statement. This statement serves to detect whether there is any discrepancy between the records of the bank and the records that the company has made.

Apart from the bank reconciliation that we have mentioned above, some companies will perform reconciliation for their debtor’s account and creditors account. When reconciling the creditor’s account, the accountants will match the statements that the creditors have sent to them with the business transactions recorded in their accounts payable account. In the process of debtor accounts reconciliation, on the contrary, they will tally the statements that the debtors have sent to them with the company’s accounts receivable accounts.

In short, the process of reconciling the accounts is vital as this helps to ensure the accuracy of accounting (Also see Inherent Risks in Accounting) records. Thus, business owners need to make sure that the accountants have always reconciled the accounts properly. Also, to ease the reconciliation (Also see The Purpose of Reconciling Bank Statement)  process, they should ensure that they have kept all the necessary documents.