Month-end Reconciliations A Masterclass in 6 easy steps

The charges have already been recorded by the bank, but the company does not know about them until the bank statement has been received. The first step is to compare transactions in the internal register and the bank account to see if the payment and deposit transactions match in both records. Identify any transactions in the bank statement that are not backed up by any evidence.

However, just because your peers are closing faster,  you shouldn’t rush your month-end close. A better approach would be to steadily optimize your month-end process in a way that keeps errors at bay while reducing the close time. I think I can shed some more light as to why I was having the discrepancy.

Accounting systems aren’t homogenous entities; they usually come in modules covering specific purposes such as an accounts payable and an accounts receivable department. Part of the closing process is reconciling all these components together. Depending on whether you run a cash-based business or if you run an accounts receivable business, you are going to need some sort of documentation system. You will need an invoicing system that matches with contracts or service agreements to reconcile and total your balances each month. Missing a step can alter the growth of your business for many different reasons.

Closing the books each month can be a tedious process, but it is vital to ensuring the financial health of your company. The month end close can help you identify deviations from your financial plan early, so you can respond quickly. Conversely, it can uncover new opportunities for business growth, and drive strategies so you can exploit them.

  • There is little doubt that month close is a significant activity in the finance function which requires the books to be closed quickly and accurately.
  • Once the general ledger has been updated, the next step is to prepare the financial statements, which can be done either with compiled data in a spreadsheet or automation tools.
  • Every account from bank accounts, to accounts payable ledgers and accounts receivable reports, must be accurately reconciled using real numbers that represent the true business activities.

Account reconciliation is necessary for asset, liability, and equity accounts since their balances are carried forward every year. The balances between the two records must agree with each other, and any discrepancies should be explained in the account reconciliation statement. Ensuring the accuracy and completeness of financial data is another significant challenge.

Check for Other Transactions

Automating bank reconciliation can reduce the cost of processing and audit costs. It can also save money by keeping a closer eye on the company’s finances and identifying any discrepancies or errors. Automation can solve the problem of time-consuming manual reconciliation and reduce errors.

QuickBooks usually has a feature like this if you use their desktop or cloud accounting software. Mark all entries such as deposits, checks, etc. as “entered” in the program if they already appear there. Every business must document or verify account balances, this process is referred to as reconcile accounting. Reconcile accounting is figuring out how much money is sitting in your account. However, to accomplish this, you must keep track of records of every transaction that transpires. From employee payroll to budgets and expenses – your dollars in spending must match what is recorded in your books.

Reasons to Reconcile Bank Statements

If you have opted for a “paperless” statement, your bookkeepers should have the log-in information to retrieve that for you. The ability to collect, store and compare records in a centralised system boosts accuracy, transparency and efficiency. Flux analysis, short for fluctuation analysis (or auto repair invoice, work orders also known as variance analysis), is one method that teams can use to identify signs of errors early on. It works by way of aggregating data and noticing instances of variance from what’s expected. However, if flux analysis is performed manually, it turns out to be time consuming and tedious.

What Is the Month End Close Process?

Tick all transactions recorded in the cash book against similar transactions appearing in the bank statement. Make a list of all transactions in the bank statement that are not supported, i.e., are not supported by any evidence such as a payment receipt. The analytics review method reconciles the accounts using estimates of historical account activity level. It involves estimating the actual amount that should be in the account based on the previous account activity levels or other metrics.

Keep accurate expense record

If you think about the amount of transactions that happen on a daily basis within your business, it’s easy to see how this process can become complex. Even if there aren’t many transactions, timing can play a role in complicating the process. Ultimately, month end close requires that various team members be in the loop and sequentially complete their tasks without delay. The amount of time that it takes your team to complete the month-end close process depends on several variables.

It also helps reduce errors and makes sharing of the financial statements easier. Now that you have all the information in place and have verified them, it’s time to prepare your financial statements. These include the balance sheet, income statement, and cash flow statement. Make sure the entries are recorded correctly and that there are no discrepancies between the financial statements.

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For example, real estate investment company ABC purchases approximately five buildings per fiscal year based on previous activity levels. The company reconciles its accounts every year to check for any discrepancies. This year, the estimated amount of the expected account balance is off by a significant amount.



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