Why is Balance Sheet Reconciliation Essential for Businesses Every Month?

As someone who runs a business, it is imperative that you have a grasp on your company’s financial standing. To do so, you must reconcile your business’ balance sheet. SMBs may face difficulties during the process; however, it is very crucial for any business. It is highly advised to reconcile these crucial accounts:

• Cash
• Loans along with other debts
• Accounts Payable and Receivable
• Accrued Liabilities
• Inventory

What does it mean to reconcile a balance sheet?

Reconciliation is comparing data, related to accounts, in two sets of records so as to make sure that they match. A balance sheet lists assets, like inventory, cash, and fixed assets. It also includes liabilities like payments that are due to vendors, staff, customers and taxes and payroll.

To avoid errors and any discrepancies, and to determine an apt categorization, it is advised that you hire an expert in the field or look for aid from a third-party firm with appropriate experience and knowledge in the reconciliation of bank accounts. Else, you may have to face frustrations and losses.

Reconciling Cash

Discrepancies in what your balance shows and what your account software shows mean that balance sheet reconciliation cannot be done. Figuring out the cause for the discrepancy may turn out to be irksome, hence experts in the field should be hired to ascertain that each transaction that bank ‘green signaled’ is appropriately stored in the accounting software.

Reconciling Loans & Other Debts

It is advised that you reconcile payments indebted to vendors, customers, banks, other businesses, creditors regularly. They must be written off as liabilities on the balance sheet, else a discrepancy arises. Else you are incorrectly representing your financial position.

This process requires that you match amounts represented on the balance sheet and on the original documents.

Reconciling Accounts Receivable

It needs to be made sure that there are no discrepancies when it comes to accounts receivable. It is an important element and dictates the amount of money a business ought to be collecting from its customers.

Any invoices that haven’t been written off or require follow up should be dealt with. Any due item beyond 90 days has to provide a reason explaining why it hasn’t been paid.

If there is a large occurrence of writing off unpaid invoices, re-assessing how invoicing is managed is advised. Payment methods, that are easy for customers to complete, such as payment by phone, email or online should be implemented. A well-managed account receivable means positive cash flow.

Also Read:

Why Your Business Needs a Finance and Accounting Management Software?

Reconciling Accounts Payable

Business experts advise that, in order to be successful, you keep track of every transaction with the vendor in order to be on top of what is owed to the vendor. It is advised to keep a regular check on this account. Being unaware of what is owed may result in underpaying the actual owed amount, resulting in damage in the vendor/company relationships. An overpayment is not friendly on the cash status.

Bookkeepers at the low level are usually handed the responsibility of managing vendor invoices, however, the reconciliation, it is advised, should be managed by experts to make sure there are no faults with the invoices.

As is the case with accounts receivable, an amount not paid for more than 2 months needs to be given an answer for as the vendors expect payment within 1 to 2 months of invoice creation.

Reconciling Inventory

The actual inventory in hand must match the data in the books before reconciliation accounting. Any error means rectification is required in the financial software. Furthermore, you should know why the error occurred, whether it was embezzlement or double-dealing or any other cause.

Reconciliation of Payroll Liabilities

Each organization has members working that receive their paycheck either according to the hourly system or on the salaried system. Owners typically face an obstacle here while going over the payroll data. A discrepancy arises when the cycles overlap between different payment periods. The payroll data may not be correctly recorded with the accounting software when the payroll leaves the bank on the very date it is processed.

There aren’t many fixes. At least that is accepted. However, what is crucial is that the practices that are adopted in this system do not change once implemented.

To get a proper hold of what the financial standing of your business is, it is important that the balance sheet reconciliation is done monthly without errors. This will help you strategize when it comes to making business and management decisions. Failure may result in undesired delays, fines, and frustrations that would hinder the growth of your business.

Reconciliation is an essential aspect of accounting and it must be handled by experts only. We at Cogneesol have a skilled team to handle all your accounting back office needs, including bank account reconciliation and a lot more. Call us at +1 646-688-2821 to know more about our offerings.