Financial information is critical for the success of any business. Regardless of the size of a business, owners and managers need accurate, complete and reliable financial information in order to make informed decisions that affect the growth and direction of their business. One of the best and most common methods to achieve this information requirement is to adopt internal controls that include regular account reconciliations. Do you reconcile your accounts on a timely basis so you have accurate, complete and reliable financial information?

Many small business owners consider the task of reconciling accounts as insignificant, or tedious and time-consuming, but it may be the most important accounting control they ever implement. Regular account reconciliations on high-volume or high-risk balance sheet accounts can identify:

• Stolen property (e.g., misappropriated inventory or fraudulent vendor payments);
• Bookkeeping errors (e.g., unrecorded sales or double-counted expenses); and
• Unrecorded bank transactions (e.g., service fees or fund transfers).

All businesses should adopt a set of best practices in preparing account reconciliations that include:

• Prepare the reconciliations in a timely manner at the end of period (week, month, quarter or year) – the frequency should depend on the level of the risk of error associated with a particular account (e.g., high-volume accounts such as cash, accounts receivable and accounts payable should be reconciled at least monthly whereas notes receivable, loans payable and fixed assets may only need to be reconciled quarterly);
• Investigate all significant reconciling items and make any necessary adjustments on a timely basis – significant items include any amounts that would affect a decision-making process of an owner, creditor or investor;
• Separate duties in the reconciliation process – the person processing the initial transactions within an account or preparing an account reconciliation, should not be the same person as the one who ultimately reviews and approves the reconciliation;
• File the account reconciliations with any supporting documentation used to make adjustments so they can be used as documentation in an audit trail.

The reconciliation of balance sheet accounts is the most important accounting control in any small business. If the process is performed on a regular basis, it allows the owner or manager to have greater confidence that the financial information being used in their decision-making is accurate, complete and reliable. Timely account reconciliations can be the difference between a good business decision and a bad one.

Contact Flexible Accounting Services of the Triangle today and let our experienced professionals develop a process of reconciling your accounts that fit your size and scope of business. We want you to have the information you need to make good business decisions!