Personal ReconciliationSingleWhat is the difference between business statements?？

People usually check their bank accounts with their deposit and withdrawal records when they receive bank statements at the end of the month, and some use software or apps on their phones to track and check。

Personal account reconciliation involves finding things you forgot to record, withdrawals or deposits that have not yet been deposited with the bank, bank charges, interest, errors and any other matters.。You want to make sure you have the same money that the bank says you have。Reconciliation is often the first security measure that can be taken against fraud and theft。

Businesses reconcile their accounting records at the end of each month, week or day to ensure that they match bank statements or other internal ledgers。For example, a business can make journal entries in the financial ledger of a cash account to show items found on bank statements but not yet recorded in accounting software (i.e., bank charges, interest, returned checks, direct deposits)。It then adds or subtracts transactions from the statement balance in the ledger but not yet at the bank, with the goal of matching the balance。

In most cases, business reconciliations involve bank statements for bank accounts and general ledgers kept by the company。But reconciliation also applies to other financial accounts, such as credit accounts, loans, and internal accounts, where businesses keep two or more records of the same transaction in different ledgers。For businesses, the most important reconciliation is balance sheet reconciliation using various ledgers and bank statements。

What is a Reconciliation Account?？

Reconciling accounts means ensuring that the records of each financial transaction on the company's ledger match records from other sources。Other sources can be internal, such as ledgers, or external, such as bank statements。

Companies usually reconcile their accounts or "bookkeeping" at the end of each month, and may also reconcile their accounts weekly or daily.。Individuals usually check their accounts monthly when they receive bank statements.。Accounting software can make reconciliations easier to manage, but human eyes are still needed to confirm entries。

In business, there are many different types of accounts that can be reconciled according to the complexity of the company, such as:

Bank Account Reconciliation: Comparing a Bank Statement to a Cash Flow Statement or General Ledger。
Accounts Receivable Reconciliation: Compare AR to aging accounts (list of due dates for bills owed by customers)。
Accounts Payable Reconciliation: Compare Accounts Payable to Aging Accounts (List of Billing Due Dates to Vendors)。
Credit Card Reconciliation: Comparing Credit Card Statements to Internal Financial Records。
Balance Sheet Reconciliation: Comparing a company's general ledger with its ledgers, bank statements, and other internal financial statements。

What are the steps for reconciliation？

The account reconciliation process steps for personal and business accounts may vary, some simple, some complex。The ledger framework for reconciling with bank statements is relatively simple:

Get copies of contemporaneous bank statements and general ledger。
Check all transactions on each matching statement。
Set up templates manually or using a spreadsheet。

Adjust bank statement balance:

a.Add deposits not yet shown at the bank (deposits in transit)

b.Less outstanding checks from banks not yet cleared

Adjust GL Balance:

a.Add interest received but not yet recorded

b.Add EFT (Electronic Funds Transfer) not yet recorded

c.Add missing receipt (bank deposit not yet recorded)

d.Minus any NSF check from the customer (returned check)

e.Less bank charges not yet recorded

Check for errors: It is easier to check for errors by first taking into account time differences and missed items。

If necessary, prepare journal entries to adjust the ledger:

a.Use Reconciliation Date

b.Identify each entry that has not been recorded and needs to be recorded

c.Credit or debit each entry to show the correct balance in the account

Why reconciliations are important for personal accounts？

In personal accounting, account reconciliation is essential to detect errors or scams and inform you of your account balance。You want the bank statement and the recorded balance to be equal and all transactions on each record to be reasonable。You can find the following in your bank statement:

• Overbilling
  
• bank error
  
• Overdraft fees
  
• Bank charges
  
• Theft - Identity theft, card fraud, fraudulent billing
  
• Interest

You search records to find withdrawals or deposits that have not been posted to your bank account and any omissions (transactions you forgot to record)。After adjusting each balance, they should be the same。

Personal account reconciliations are very important to ensure that your financial situation remains healthy - think of it as financial consolidation。Individuals who do not reconcile their accounts are more likely to overestimate or underestimate their available funds, potentially leading to missed opportunities or unexpected overdraft charges。Plus, expenses you don't realize on the record tend to snowball out of control。Reconciliation is also critical to quickly catch foul play。

Why Reconciliation is Important for Business Accounts？

For businesses, account reconciliation is not only necessary to track the company's financial health, but is also a key feature of the company's internal controls required under the Sarbanes-Oxley Act (SOX)。Internal control is a company's policy to ensure that its accounting practices are reliable and correct.。

The Sarbanes-Oxley Act was enacted in 2002 after several accounting scandals involving public companies caused significant damage to shareholders and other parties.。The bill requires the CEO and CFO to sign the company's financial statements and be liable if the financial statements are fraudulent.。

If external auditors report errors in the company's quarterly and annual filings with the SEC, it could put the company in trouble and affect its value.。Errors at this level are called:

Significant deficiencies: errors that cast doubt on corporate accounting practices。
Material Misstatement: Errors that may mislead investors, customers, banks, or others。

By regularly reconciling the accounts, companies can first identify these errors internally so that adjustments to explain the errors can be reflected in SEC reports in a timely manner。The reconciliation of accounts is an integral step in confirming that the company has not been accused of fraud (also known as "falsifying accounts") to make it appear that it is more profitable than it actually is.。