Reconcile Accounts Receivable – Is It a Real Challenge?
Posted by: Dr. Devaansh | Posted on: May 4th, 2016
The ground rule of any business is to keep a track of money owed by clients as well as maintaining an accurate record of money received from clients, which in turn is applied to money they currently owe. This Money owed is known as receivables.
To avoid debacles, an organization has separate departments who work only for this, and their job is to track the money on hand and the one that is due. They also generate and send bills, and receive and process payments.
The sole purpose is to ensure, when asked, they have all the financial details on hand with a clear picture of accounts. To put in the simplest form, Account receivable department keeps up with billing information and customized billing needs. The method helps mainly in finding any discrepancies and helps in rectifying them before overall reconciliation of the accounting records.
The primary goal of reconciliation is finding the difference, in data shown and the differed documentation. It also means that you might have to go back to all concerned documents, relevant to receivables for that period of time.
- General ledger: General ledger reconciliation is the procedure executed by accountants to confirm the integrity of account balances on the company’s general ledger of accounts. It includes comparing the general ledger account balances with other independent systems, statements, and reports, to authenticate that the balances are correct and precise; investigating thoroughly any discrepancies that are identified; and taking proper corrective actions to resolve these discrepancies.
- Receivables detail: It lists all the clients that owe money to the company along with their current balances. In other words, the accounts receivable ledger is a summary of all current and outstanding accounts receivable at the end of a specified period. Individual details of every customer’s balance is not listed or recorded in the general ledger.
Upon reconciling accounts receivable, there one may find differences between the two amounts for the following reasons:
- A journal entry was made to the general ledger account that bypassed the subsidiary sales ledger. This is the most common reason for a difference.
- A billing was accidentally posted to an account other than the trade receivables account. This is the least common reason for a difference, since the billing module is set to automatically record all billings to the correct account.
- The aged receivables report was run as of a different date than the date used to obtain the general ledger balance.
Reconciliation process is typically conducted as a part of the month-end closing activities prior to issuance of the financial statements. If the reconciliation is not conducted, and there is an error in the general ledger, it means there could be a material inaccuracy in the financial statements.
At a minimum, there should be a reconciliation of accounts receivable at the end of the fiscal year, so that any inaccuracies related to receivables will have been removed from the financial statements prior to their examination by the company’s external auditors.
Reconciliation is an accounting procedure that proves and documents that account balances are in tallying. It’s an essential account process that makes sure that the actual money spent matches the money leaving an account at the end of a fiscal period. This is particularly important for businesses and individuals to inspect duplicitous activity and to avoid financial statement errors.