According to U.S Senator Elizabeth Warren, “balancing your money is the key to having more”. I believe the surest ways to have more money starts with you taking the decision to know your true financial health or your true balances to guide your plans. You thereby need to reconcile your accounts regularly. Individuals who are conscious of their finances need to compare their cheque books or credit card accounts with their physical receipts or bank statements. This way, they are able to identify errors, which their banks or credit card issuers may have committed, and have them corrected.
This process is referred to as account reconciliation and at the heart of accounting function in corporate organisations. Indeed, companies perform account reconciliation activities to ensure that cash inflows (receipts in their accounts) and outflows (payments out of their accounts) are accurate, help to detect fraud and give assurances to users. Account Reconciliation involves many processes, and you may have experienced the following:
- Comparing your bank statement(s) with your cashbook of cash receipts and payments. For instance, as your company’s accountant, you may have noticed that your company was charged by your bank for a transaction, which was not in your cash book. You contacted your bank to get more information on the charges. The bank discovered that the mysterious charges resulted from the bank’s error and the bank reimbursed the company for the incorrect deductions. Correcting the bank’s error bring the bank statement and the cash book into an agreement.
- Comparing your suppliers or vendors’ statements to your company’s record of bills outstanding to avoid discrepancies in the company’s records and that of the vendors.
- Where your company has credit terms with its customers, then comparing your debtors’ statement to your customers’ record of outstanding invoices is ideal to making sure you are on the same page with your customers.
- For companies with many subsidiaries, intercompany reconciliation helps the parent company (group) to ensure that consolidated accounts are accurate.
Pain Points of Frustration
Differences or discrepancies that are detected during account reconciliation can be attributed to many underlying reasons. In some situations, you would realise that the company is using wrong set of accounting standards to account for their transactions. If they remain undetected, the discrepancies can undermine integrity of accounts and cause other serious problems between a company and its stakeholders. As an accountant, you could be overwhelmed with the workload especially when you have timelines (deadline) to submit urgent reports. Despite the frustrations, you require diligence to spot the sources of the discrepancies and resolve them. The discrepancies could also be due to any of the following:
- Timing Differences: It can happen that the transactions have been captured in the general ledger, but the cheque has not yet been cleared (or it is dishonoured) by the bank.
- Duplication: This can happen either when you record a transaction more than once due to computer glitches (electric power fluctuations), hitting the “submit” button many times or just miscommunication among staff.
- Omissions: This accounts reconciliation discrepancy relates to transactions, which appear on the bank statement but haven’t yet been recorded by the company in its cashbook. This can be due to missing receipts.
- Mistakes: Even with the best accounting systems, mistakes in accounts will happen sometimes. Mistakes in accounts often happen due to human errors emanating from data entries, incorrect calculations) or insufficient details in the bank statement.
Complexities
Account reconciliation is very important to every company, but the frequency varies from one company to another and so depends on the accounting period, the company’s size, the volumes of transactions, and the number of accounts involved or payment platforms. Flowing from that, account reconciliation can, therefore, be done monthly, weekly, or even daily. You can imagine the volumes of transactions large corporates like banks, Fintech, Telcos, utility service providers, ecommerce companies and even payment platforms record daily from their operations and the frequencies at which they need to reconcile their accounts for timely decisions.
We can also refer to universities, revenue collection agencies and the likes who have to contend with receiving their fees or tax payments from different payment platforms and the need to reconcile them. Indeed, the high volume of transactions in respects of deposits (inflows) and payments(outflows) these institutions handle on daily basis gives rise to complexities (mistakes, omissions, duplications etc.) Hence, efforts at reconciling those accounts with millions of transactions through manual processes can be tedious, time-consuming, and highly ineffective. Your company will continue to be saddled with the recurrent account reconciliation bottlenecks and the frustrations associated with them unless you adopt a modern, automated, and highly efficient reconciliation system.
In fact, reconciliations of accounts and transactions is now a bigger problem with the exposition of digital payment platforms. These digital payment platforms are expanding in new markets, adding new products and handling increasing transaction volume and thereby making reconciliations a more complex process. Human intervention through manual processes cannot solve the problem. An automated solution which simplifies the process is the most viable alternative.
Automated Software Solution
For me, a modern (bespoke) software solution must tick the box in terms of its security, integrity, accuracy, reliability and precision of results for your account reconciliations. Based on my experience, ReckSoft reconciliation software can handle millions of transactions in a few seconds. It is designed to handle large volume of transactions at a go with speed and accuracy for all your account reconciliation needs in all sectors, be it accounting, manufacturing, banking and finance, government, telecommunications, fintech, thus all electronic payment systems including the mobile payments services.
Bernard is a Chartered Accountant with over 14 years of professional and industry experience in Financial Services Sector and Management Consultancy. He is the Managing Director of J.S Morlu (Ghana), an international consulting firm providing Accounting, Tax, Auditing, IT Solutions and Business Advisory Services to businesses, government and not for profits.
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