Definition 

Reconciliation is the process of comparing departmental account records to the reports generated from the Finance Records System.  Account reconciliation is essential to ensure accurate reports, because it identifies errors and inconsistencies requiring correction. 

Why do we need to Reconcile?

Typical transactions include copies of invoice payment forms, travel expense reports, petty cash forms, deposit slips, salary changes, etc are all open to data entry errors and other types of mistakes.  It is therefore essential that companies adopt a continuous improvement process with the goal of reconciling all accounts at the end of each month to ensure that the fiscal year-end is not spent investigating discrepancies and process correcting journal entries.  Therefore it is essential that accounts departments use "Joined-Up" accounting policies which interact accross corporations.

As well as ensuring external financial statements are accurate, complete and timely, reconciliations are essential to ensure:

• Internal control to keep track of departmental and project budgets
• Safeguarding against internal & external fraud
• Compliance with laws, regulations and contracts

Examples of Reconciliation

• Bank reconciliations
• Supplier statement reconciliations
• Inter-company/group balance reconciliations 
• Fixed assets register to accounting system

Bank Reconciliation

This will simply highlight:

• Items which are in the cash book but on the bank statement
• Items which are on the bank statement but not in the cash book

However it is important the person recording bank transactions does not perform the bank reconciliation

Supplier Statement Reconciliation

This simply means that you have to compare the supplier's statement to all the invoices that the supplier has sent you.

Accounting software has been designed that will enable the AP Ledger information to be checked at a detailed level against the electronic statements submitted by your suppliers.  Once matched against your AP data the software identifies
exceptions, highlights and automatically tags exceptions, which are then handled within the research component of the solution.  This enables you to spend less time on the matching process and more time managing the exceptions.
 

This ensures:

• Every transaction on the supplier statement is properly presented and accounted for before invoices are paid
• Rapid identification of exception items
• Workflow management of exceptions through to resolution
• Standardisation of information received
• Reduced payment errors
• Retain control of cash until issues resolved
• Underpin Trade Creditor accuracy
• Reduce the cost per transaction
• Enable a web-portal for supplier notification of exceptions
• Automate the payment of matched items to free up time to manage exceptions

Inter Company/Group Balance Reconciliations

One of the most challenging processes when it's time to produce the month end figures can be reconciling intercompany balances to zero.  Accounts payable departments need to find the documents which cause intercompany discrepancy, follow them up and make the necessary changes.  This process can be undertaken automatically which will go a long way to eliminate the element of human error and fraud.  In addition, automating the process can highlight areas where duplicate payments have been made for example, and can speed up the entire process. 

Fixed Assets Register to Accounting System

A fixed asset register (FAR) must be kept in order to comly with legislation covering corporations, companies etc.  It allows companies to keep track of details of each fixed asset, ensuring control and preventing their misappropriation.  In an organisation, fixed assets can be anything from land, buildings and office furniture to copyrights and patents and assets under construction.  A FAR also keeps track of the correct value of assets and can calculate depreciation for tax and insurancce purposes.  The FAR generates accurate, complete and customised reports that suit the needs of management.  In a large corporation, the task of identifying and locating a specific fixed asset can be difficult unless numbering is systematic and up to date.  A common problem in most companies is the lax approach taken to maintainence of the register.  This can be remedied by a system of tagging - in otherwords, using an ID number.  This can then track the asset's existence, location and will aid in providing a common ground between accounts departments and end users recording a net value in case of their sale or scrapping.