Account Reconciliation is an accounting process used to ensure that transactions in a company’s financial records match independent third-party reports. Although the adjustment ensures that the recorded totals from the accounts correspond to the amount used and that the two accounts are balanced at the end of the reporting period.
Adjustments are used by accountants to explain the differences between two financial records, such as bank statements and cash books. If there is an unexplained difference between the two records, it may be a sign of financial diversion or theft.
Asset, liability, and capital account balances are carried forward each year and require account adjustments.
Ways to adjust your Reconciliation account :
1. Document review
Firstly , document reviews are the most commonly useable account adjustment method. This involves calling the account details in a statement to verify the suitability of each transaction. The documentation method determines if the amount obtained in your account matches the amount actually spent by the company.
2. Analytical review
Secondly, the analytic review method adjusts your account using historical account activity level estimates. This process means to determine if the mismatch is due to a balance sheet error or theft.
For example, a company can estimate the expected credit losses on its accounts receivable and see if it is close to the balance of the allowance for doubtful accounts.
Account Reconciliation Adjustment Mechanism
Most companies use accounting software to record transactions and adjust for differences that occur between bank statements and cash books. The step-by-step process for adjusting your account is as follows:
1. Compare the cash book statement with the bank statement.
Firstly, check all transactions recorded in the cashbook for similar transactions that appear on your bank statement. Creates a list of all transactions in a bank statement that are not supportable , that is, by evidence such as payment receipts.
2. Note all payments written down in the cashbook do not appear as payments on your bank account statement.
Secondly the transactions may include ATM transactions and checks. The transaction should be deductible from the balance on the bank statement.
3. Check all the related transactions which occurs in both records of cashbook and the bank statement
Find direct deposits and account credits that appear in your cashbook but not on your bank statement and add them to your bank statement balance. Similarly, if you’ve got a deposit that appears on your statement but isn’t in your cash book, add that entry to your Cash book balance.
4. Check your bank statement for errors.
A bank error is an incorrect debit or credit on a bank statement of a check or deposit recorded in the wrong account. Bank errors are rare, but companies should contact the bank immediately to report the error.
The adjustments will appear in future bank statements, but you will need to make adjustments in your current bank adjustments to adjust for any discrepancies.
5. Make sure the balances are equal.
Above all, bank statement for cash books, the balances of both records must be equal. You need to create a bank verification statement that describes the difference between your company’s internal records and your bank account.
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