In the world of finance and accounting, the process of reconciliation plays a vital role in ensuring accurate and transparent financial records. Reconciliation is the act of comparing and matching two sets of data to ensure their consistency and accuracy.

It is a crucial process for businesses to identify discrepancies, resolve errors, and maintain the integrity of their financial statements. Manual reconciliation can be time-consuming, prone to errors, and inefficient. This is where automating the process of reconciliation can significantly streamline your workflow and improve overall efficiency.

In this article, we will explore the process of reconciliation and discuss the steps. We will also delve into how you can automate the process of reconciliation with the help of Nanonets.

What is Reconciliation?

Reconciliation is the process of comparing two sets of data to ensure they align with each other. In the financial context, it involves comparing various financial records, such as bank statements, cash registers, invoices, and receipts, to identify any discrepancies or inconsistencies. The aim is to reconcile the data and ensure that transactions match supporting documents across different sources.

What are the steps in the Process of Reconciliation?

The process of reconciliation involves several steps to ensure accuracy and consistency in financial records. Here are the general steps involved:

Gather relevant documents

Collect all the necessary financial documents that need to be reconciled. These include bank statements, invoices, receipts, and internal records (such as general ledger or accounting software reports).

Compare beginning balances

Start by comparing the beginning balances of the accounts or records being reconciled. For example, compare the beginning balance of a bank account as per the bank statement with the balance recorded in the company’s general ledger.

Verify transactions

Go through each transaction listed in the bank statement and compare it with the corresponding transaction recorded in the internal records. Ensure that the transactions match date, description, and amount. Mark any discrepancies for further investigation.

Identify outstanding items

Look for outstanding items that may appear on either the bank statement or the internal records. Examples include outstanding checks, deposits in transit, or pending transactions. These items need to be accounted for and reconciled to ensure accurate financial reporting.

Investigate discrepancies

Analyze the discrepancies or differences identified during the comparison process. This may involve contacting the bank for clarification, cross-referencing supporting documents, or communicating with relevant departments within the organization. Investigate each discrepancy to determine the root cause and take appropriate actions to resolve them.

Adjust records

Based on the investigation and resolution of discrepancies, make any necessary adjustments to the internal records. This may involve updating the general ledger, making journal entries, or correcting errors in the accounting software.

Reconcile ending balances

Once all discrepancies are resolved and adjustments are made, compare the ending balances of the accounts or records being reconciled. Ensure that the ending balance as per the bank statement matches the balance in the internal records after all adjustments.

Prepare reconciliation report

Document the entire reconciliation process and its outcomes in a reconciliation report. The report should include details such as the beginning and ending balances, a summary of discrepancies found, actions taken to resolve them, and any adjustments made. This report serves as evidence of the thoroughness of the reconciliation process and provides documentation for auditing purposes.

Review and approval

The reconciliation report is reviewed and approved by the appropriate personnel to ensure accuracy.

Ongoing monitoring

Reconciliation is an ongoing process, so it is important to establish regular intervals for performing reconciliations. This should be done to track transactions and records to identify and address discrepancies on time.

It’s worth noting that the specific steps may vary depending on the nature of the accounts being reconciled, the organization’s internal processes, and the tools or software used for reconciliation.

An example of the Reconciliation Process

Account reconciliation is a crucial process in financial management that ensures the accuracy and integrity of financial records. It involves comparing two sets of financial information to identify and resolve any discrepancies between them. Here’s an example of account reconciliation:

Let’s consider a fictional company called ABC Corporation, which operates in the retail industry. ABC Corporation has many bank accounts for different purposes, such as payroll, vendor payments, and general expenses. At the end of each month, the company’s accounting department performs account reconciliation to verify the accuracy of their bank statements and internal records.

Balancing Each Accounts

To begin the reconciliation process, the accounting team gathers the bank statements for all the company’s accounts for the previous month. They also access the company’s general ledger, which contains the internal records of all financial transactions made during the same period.

The first step is to compare the beginning balance of each bank account listed on the bank statements with the corresponding balance recorded in the general ledger. Let’s say the bank statement for the payroll account shows a beginning balance of $50,000, while the general ledger indicates a beginning balance of $48,000. This discrepancy of $2,000 needs to be investigated and resolved.

Matching Transactions and Tracking Discrepancies

Next, the accounting team compares the individual transactions listed on the bank statements with those recorded in the general ledger. They carefully go through each transaction, ensuring that they match in terms of date, description, and amount. Any discrepancies found are flagged for further investigation.

During the reconciliation process, the team may encounter various types of discrepancies. For instance, they might identify outstanding checks that haven’t cleared the bank or deposits that were recorded in the general ledger but were not reflected on the bank statements. These discrepancies need to be resolved by contacting the bank or verifying the internal records to ensure accurate reporting.

Additionally, the accounting team also reconciles any fees, interests, or other charges levied by the bank. They compare these charges listed on the bank statements with their internal records to ensure consistency.

Final Steps

Once all discrepancies are identified, the accounting team investigates each one thoroughly. They might communicate with the bank, verify supporting documentation, or reach out to relevant departments within the organization for clarification. Resolving discrepancies may involve adjusting the general ledger, updating bank records, or making journal entries.

Finally, when all discrepancies are resolved, the accounting team prepares a reconciliation report that summarizes the findings and actions taken. The report serves as evidence of the thoroughness of the reconciliation process and provides documentation for auditing purposes.

In conclusion, account reconciliation is a vital process that ensures the accuracy and reliability of financial records. By comparing bank statements with internal records, discrepancies can be identified, investigated, and resolved, leading to more accurate financial reporting and improved financial management.

How to Automate the Process of Reconciliation with Nanonets

Nanonets offers an intelligent document automation platform that combines no-code workflow automation, OCR software, and a global payments platform to automate the reconciliation process. By leveraging Nanonets, organizations can update their financial records, track spend categories, and improve financial visibility through advanced process automation.

Nanonets’ workflow automation capabilities allow for easy and seamless document upload to their OCR models. You can feed your bank statements, cash registers, and proof of payments directly to Nanonets via email forwarding, Google Drive, or other integrations. This eliminates the tedious task of collecting and organizing documents manually.

Once the documents are uploaded, Nanonets employs its document classifier to categorize the documents automatically. It then utilizes OCR technology to extract all the relevant data from the documents, such as time period, currency, comments, and transaction details. This data extraction process is accurate and efficient, ensuring the extracted information is available for further processing.

With the extracted data in hand, Nanonets’ rule-based workflows enable seamless data matching across various sources. The automation capabilities of Nanonets ensure quick and accurate matching, significantly reducing the time and effort required for manual comparison. Any non-matching entries are flagged and sent for review, enabling the relevant stakeholders to address discrepancies promptly.

Nanonets’ document annotation feature enhances collaboration among reviewers. Comments and suggestions can be added directly to the document, allowing for efficient communication and reducing the likelihood of errors in the final file. This collaborative approach ensures that the reconciliation process is thorough and accurate.

Upon final approval, Nanonets facilitates automatically updating matching entries in your ERP or accounting software. Alternatively, you can choose to export the reconciled data to Google Sheets or your preferred database for further analysis and reporting. This seamless integration with your existing systems ensures that the reconciled data is accurately reflected in your financial records without the need for manual intervention.

Conclusion

The process of reconciliation is a critical aspect of maintaining accurate and transparent financial records. However, manual reconciliation can be time-consuming, error-prone, and inefficient. By automating the process of reconciliation with Nanonets, organizations can significantly streamline their workflow, improve efficiency, and ensure the integrity of their financial statements.

Nanonets’ intelligent document automation platform leverages workflow automation, OCR software, and a global payments platform to automate the reconciliation process. From document input and data extraction to data matching and final review, Nanonets simplifies and accelerates each step of the reconciliation process.

If you’re looking to automate your reconciliation process, Nanonets provides the tools and capabilities to make it a seamless and efficient experience. Say goodbye to manual reconciliation and embrace the power of automation with Nanonets.

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• Source: https://nanonets.com/blog/process-of-reconciliation/