What is Account Reconciliation?

This post was originally written on the Chargebee blog.

What is Account Reconciliation?

Account reconciliation is an essential part of accounting, and it’s something that everyone in the financial team has to deal with — from the controller to the accountants.

Reconciliation is simple: it’s the process that compares internal financial statements against external statements from a bank or other financial institution, making sure everything is in alignment — and fixing any errors.

It’s a subject we’ve been covering lately — because Chargebee can help solve the reconciliation problem many organizations face. You might be experiencing it, dealing with human error, and checking financial statements (your balance sheet against the bank statement) multiple times. More on that later.

Let’s jump in and take a look at all of the details you’ll need to consider when thinking about account reconciliation, including how to manage your time and your team during a potentially arduous process. If you’re interested in cutting back on time and team effort, check out this blog post on automating reconciliation.

What Does Your Month-End Look Like?

The month-end is the craziest time of the month for accountants (unless it’s quarter-end or year-end). You’re working hard to get all of your balance sheets in order, and there is a lot of pressure to get those books turned around as quickly as possible and make sure it’s error-free. However, fast can be a relative term, and depending on your organization and how much more you need to do manually (or without automation), it may take you longer.

But what does month-end look like for your organization? If you find that you’re still slogging through manual processes, you may fall into this category: having a slower-than-average close (11 or more business days).

Related Resource: Learn about Account Reconciliation Tools

Closing Your Books Faster Than Ever Before? Thank Automation

There is some good news, though. In 2019, Ventana Research, leading benchmark research, and advisory services firm, noted that more organizations are closing their quarter faster than ever before. Take a look at the graph below, showing how fast organizations have started to close the quarter between 2014 and 2019.

In addition to the graph showing quarterly close, Ventana Research also notes that in 2019, 61% of respondents said their company completes its monthly closing within six business days. Compared to the 53% in 2015 — an 8% jump. Even more impressive is how 46% finish their monthly within four business days compared to the previous rate of 29% in 2015.

The jump in efficiency is rooted in automation, as 88% of companies closed within six business days use automation in almost every aspect of their closing.

But even without automation at the forefront of the month-end closing, you will need to have some controls in place to ensure that your accounting processes, including reconciliation, move smoothly. Let’s take a look at those internal controls next.

What Are Your Internal Controls?

For the finance team, setting up internal controls is paramount — because these controls can highlight issues from clerical errors to process hiccups and even help catch fraud. It is likely one of the first things your company or department needs to set up as the business is being created. These internal controls are procedures that your company implements to ensure integrity and prevent fraud.

Having these controls in place will help mitigate some of the risks — it is crucial for consistent financial statements.

As your organization grows, so will your internal controls. As noted by AccountingTools, one of the most comprehensive sources for accounting information online, internal controls cannot prevent fraud. Still, they assist with keeping an eye out for any potential issues like fraud. There are three main types of internal controls, including:

• Detective controls — controls to highlight the problems with the accounting processes.
• Preventative controls — controls put into place to help clerical accuracy and prevent employee fraud.
• Corrective controls — controls put in place to correct errors found by detective controls.

The financial controller is usually responsible for ensuring these controls are in place and effective. You can ensure these internal controls are in place through increased oversight, restricting access to financial systems, or having your statements reviewed by an outside source, like a CPA.

For complete article, please visit Chargebee blog.