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Accounts Reconciliation

Account Reconciliation

Account reconciliation ensures that the financial statement account balances are correct at the end of an accounting period. It is a procedure that employs two sets of records to ensure that figures are accurate and consistent. If they disagree, they must make necessary adjustments or identify and explain differences.

Account Reconciliations

  • Account reconciliations are usually carried out following the end of a financial period. Accountants check the accuracy of the balances listed as they go through each account in the financial statements. This frequently entails contrasting the financial statement balance with data from another source, such as determining the credit for the Cash account with an external bank statement. Additional examples of crucial funds that need to be compared include:

    • Cash and investments – comparing to external bank and investment accounts
    • Accounts Receivable – comparing to the AR sub-ledger
    • Accounts Payable – comparing to the AP sub-ledger
    • Prepaid Expenses – listing the components of the account balance
    • Accrued Liabilities – listing the components of the account balance
    • Intercompany Payables and Receivables – ensuring they eliminate during consolidation
    • Fixed Assets – listing the components or tying out to a sub-ledger

    Account reconciliations are primarily done to guarantee the accuracy and consistency of financial reporting. With thorough audit trails available to support all account balances, account reconciliations are essential and a necessary internal control for publicly-held businesses that must report financial outcomes to external stakeholders.

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