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5 Statement Reconciliation Types & Their Importance in Business Operations
One of the main aspects of operating a business smoothly and in financial management is account statement reconciliation. It analyzes and compares recordsets to understand the differences between them. Usually, one record set is a ledger from the business’s books, which requires reconciliation, and the other set is acquired from internal and external sources.
It’s important to know different types of reconciliation processes to ensure the smooth operation of your business’ supply chain. Here are 5 statement reconciliation types to know.
Accounts Payable to Accounts Receivable
This type of reconciliation is between the accounts payable and accounts receivable statements. The total amount payable is reconciled with the total amount receivable by the company. This ensures no discrepancies in the records and that all amounts have been accounted for.
Inventory to Accounts Payable
This reconciliation type happens between the inventory statement and the accounts payable statements. The total value of the inventory on hand is reconciled with the total amount payable to suppliers for that inventory. This does away with the process irregularities and accounts for all the amounts during the process.
Accounts Receivable to General Ledger
This reconciliation is between the accounts receivable statement and the general ledger. The company’s total amounts receivable are reconciled with the general ledger’s corresponding amount. This eliminates the chances of discrepancies by ensuring that all entries have been made correctly.
Accounts Payable to General Ledger
This reconciliation compares the accounts payable statement with the general ledger. All amounts total payable by the company is reconciled with the corresponding amount in the general ledger. This eliminates the chances of discrepancies and ensures correct entries.
Bank Statement to Cash Receipts
This reconciliation compares the bank statement with the cash receipts. The total of all amounts in the bank statement is reconciled with the total of all cash receipts. This makes sure that all transactions have been accounted for and that there are no discrepancies in accounting.
Mistakes to Avoid During Supplier Statement Reconciliation
It is easy to make mistakes with numerous invoices daily and experience financial irregularities as a business owner. This is why it pays to know various mistakes to avoid during supplier statement reconciliation. Let’s look at the 8 most common mistakes.
Not Maintaining a Good Record of Accounts
Businesses either do not maintain records or fail to update them regularly. This creates discrepancies and makes it difficult to reconcile accounts.
Not Tracking Supplier Payments
Ignoring to track supplier payments leads to confusion and makes it difficult to know which payments have been made and which are outstanding. This creates difficulties in reconciling accounts.
Not Tracking Inventory Purchases
Skipping to track inventory purchases makes it challenging to reconcile the inventory statement with the accounts payable statement.
Not Reconciling Accounts Regularly
This leads to accumulated discrepancies and makes it challenging to identify and rectify them.
Not Checking Supplier Statements for Accuracy
Suppliers often make mistakes in their invoices and send incorrect statements to businesses. Not checking these statements for accuracy leads to discrepancies.
Failing to Communicate with Suppliers
Failing to communicate with suppliers about outstanding payments and discrepancies makes reconciling accounts more difficult.
Not Updating Accounts Payable Records
Updating accounts payable records regularly ensure that all payments are accounted for and help in avoiding discrepancies.
Not Seeking Professional Help
Ignoring professional help when facing difficulties in reconciling accounts leads to more problems down the road.
Statement reconciliation is essential for businesses to keep track of their finances and avoid irregularities. There are various types of reconciliations, and each has its own importance. Businesses should avoid common mistakes while reconciling their statements to ensure accuracy.