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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 advisable to reconcile these crucial accounts:
- Loans along with other debts
- Accounts Payable and Receivable
- Accrued Liabilities
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 discrepancies, and determine an apt categorization to hire an expert in the field or look for a third-party firm with appropriate experience and knowledge in the reconciliation of bank accounts. Else, you may have to face frustrations and losses.
Discrepancies in what your balance shows and what your account software shows mean that balance sheet reconciliation is unequal. Figuring out the cause for the discrepancy may turn out irksome. Hence, experts should ascertain that each transaction that the bank signals is green and is available in the accounting software.
Reconciling Loans & Other Debts
It is advisable that you reconcile payments to vendors, customers, banks, other businesses, and creditors regularly. They must write off as liabilities on the balance sheet, or else a discrepancy arises. Otherwise 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 ensure 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 you write off or require follow-up can help you deal with it. Any due item beyond 90 days has to provide a reason explaining why there’s a delay in payment.
If you witness a high volume of write-offs for non-payment invoices, re-assessing to manage invoices. Implement payment methods, that are easy for customers to complete, such as payment by phone, email, or online. A well-managed account receivable means positive cash flow.
Reconciling Accounts Payable
Business experts advise that, to achieve success you should keep track of every transaction with the vendor in order to be on top of the vendor. It is advisable to keep a regular check on this account. Being unaware of what you should pay may result in underpaying the actual amount, resulting in damage to the vendor/company relationships. An overpayment is not friendly on the cash status.
Bookkeepers at the low level usually have the responsibility of managing vendor invoices. However, ask experts to take care of reconciliation 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 as the vendors expect payment within 1 to 2 months of invoice creation.
The actual inventory in hand must match the data in the books before reconciliation accounting. Any error means rectification 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.
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