Account reconciliation is one of the vital concepts in accounting system which is used as a checking mechanism of the financial accounts that you have made with other organizations like banks, financial institutions and credit debit agencies. Most of the time account reconciliation is applied between personal or company ledger and a bank account to control any errors or mistakes that might be occurred during the transaction process. In addition, account reconciliation must be formulated to clear from unexpected charges and fees thereby making the transaction environment transparent, accountable and free from unwanted financial failures.
During the process of bank reconciliation the two transaction statement sides are provided. But what components does each of the ledger accounts record?
Consider company X which is a regular customer in Bank Z. The company always records the overall ledger accounts that include receipts, service users and other account flow factors. On the other hand, the bank records financial statement of that particular company in terms of service charges, checks, deposits and withdrawals based on the terms and conditions set by the bank. Account reconciliation is not easy to apply both in company and bank modes since most companies have made hundreds or thousands of transaction checks within a single month that the recordings done in a particular company may vary with the recording time of the bank. For instance, if a company had purchased and completed a transaction process of about 200 checks in September, the number of checks recorded by the bank may sway that it made a transaction check and balance on the next month. Therefore, it is very essential to know that account reconciliation in both parties must be registered correctly and completed carefully only with few errors.
Account reconciliation may be carried out in different times of the year depending on the interests of the company and the bank. They can prepare account reconciliation monthly, yearly or even at the quarter of the year but every company must reconcile the overall account before the beginning of a new transaction statement. Most of the time, balance sheet account reconciliation is implemented to recheck the general accuracy of the accounting cycle. During account reconciliation, a number of balance sheet account items are added at times of complex transactions. Some of these items are outstanding checks, account payable and receivable, assets and inventories. Depending on the transaction types and conditional events, each item has its own debited or credited patterns of journal entry.
Account reconciliation has no formal formula since every account output uses different ways of checking analysis and logical equations. However, the character of reconciling a given account is similar without stepping in further details. The sum of transit deposits and balance recorded by the bank must be equivalent to the sum of the remaining balance after final account reconciliation and the outstanding payments. At the end of account reconciliation process, any error record must be corrected on the proper journal entry to maintain the final adjusted account.
