Accounts Reconciliation Is the Key to Detect Fraudulent Transactions: WHIZ CONSULTING

Top Quote “Whiz consulting says that reconciling accounts helps to point out any fraud or monetary discrepancy that can occur in the business.” End Quote
  • (1888PressRelease) April 29, 2022 - In simple terms, accounts reconciliation is the comparison of the money to be spent with the money spent. The accountants perform a systematic process to record correct balances in the accounts. The internal balances are compared with the external balances or a third-party record to determine if any difference occurs. The accountants perform account reconciliation with business owners to detect fraud or monetary discrepancies.

    Reconciliation of accounts consistently helps business owners to:

    Avoid any balance sheet errors that may lead to adverse consequences.

    Ensure accuracy and consistency of financial records.

    Make accurate financial decisions

    Detect any pecuniary inconsistency in the financial records.

    Maintain solid relationships with vendors and suppliers.

    Earlier, business owners conducted manual methods to reconcile accounts, but businesses are transitioning towards automation since the introduction of cloud accounting software. Manual processes arise the possibility of human error leading to adverse situations, whereas, with cloud accounting software, human errors are minimised, giving better accuracy. Automating reconciliation reduces operational costs, errors, ensures data security, improves accessibility, and increases efficiency. With the introduction of automation in the process, an additional layer of security is added. At the same time, human resources can allot more time to the creative and strategic part of the business.

    Reconciliation of accounts can be initiated weekly, monthly or quarterly as per the convenience of the business. However, businesses that involve high volume transactions or are industry-related should reconcile accounts more often due to the increased chances of fraud or discrepancies.

    Accounts reconciliation is not confined to a specific procedure. It works per the double-entry bookkeeping system wherein every transaction exists once as a debit and once as a credit. It makes the process of accounts reconciliation and comparison of the records much more feasible. However, accounts can be reconciled in two ways:

    Documentation review: The most common form of account reconciliation is reviewing the document. It calls for account detail in the statements and a review of the appropriateness of each transaction. This discloses whether the amount in the account matches the amount actually spent by the company.

    Analytics review: This method reconciles accounts based on estimates of historical account activity. It involves estimating the balance that should be in the account as per the historical analysis.

    The choice of review depends upon business to business. However, every reconciliation process is followed by steps to figure out any missing transactions or potential errors. The series of steps involve:

    To check the general and ledger for all the accounts to verify that no missing transaction exists.

    To compare the general ledger balance with the data of independent third-party systems or other supporting documents.

    To take corrective actions to eliminate any discrepancy.

    To prepare necessary journal entries to balance out the errors (if any occurred).

    The last step is to post the new journal entries to reconcile the accounts.

    Although reconciliation of accounts ensures transparency and accuracy, there are specific problems associated with it. Sometimes carelessness and shortcomings lead to mistakes that ultimately affect the business's financials. The most common issues associated with reconciliation can be:

    Reversal errors – This happens when a transaction is entered as a debit entry instead of a credit entry.

    Duplicate payments – This happens when a payment is made twice to a particular supplier.

    Entries in the wrong month- Debits and credits entries are entered in the wrong months instead of the actual payment month.

    Missed reconciliations: Reconciliation is affected if not performed consistently. A timely reconciliation enables to recall of the details of transactions quickly. Otherwise, it becomes difficult to get a clear understanding of the business's financials.

    Whiz Consulting, one of the leading outsourced accounting and bookkeeping service providers, has served its clients for decades. The professionals here possess expert knowledge and years of experience, thereby solving accounting and bookkeeping-related issues in the business.

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