How do I reconcile an account?
Tuesday, August 31, 2010 at 5:58AM
Steven Bragg in Bookkeeping
When you reconcile an account, you are proving that the transactions comprising the account balance are correct. This means you can prove one of two assertions: * That the transactions included in a revenue, expense, gain, or loss account belong in that account, and so should not be shifted into an account that more closely matches the nature of the transaction; or * That the transactions included in an asset, liability, or equity account are valid, and so should not be flushed out of the balance sheet by shifting the transactions into accounts associated with the income statement. Auditors want to see an account reconciliation for larger accounts, though you should perform reconciliations yourself even in the absence of an auditor request, since this is a good accounting practice. An account reconciliation is usually done for asset, liability, and equity accounts, since their account balances may continue on for many years. It is less common to reconcile a revenue or expense account, though this may be done simply to verify that transactions were recorded in the correct account; a reconciliation may reveal that you should shift a transaction into a different account. There are two ways to reconcile an account, which are:
* Documentation review. A documentation review is the most common form of account reconciliation, and the one that auditors prefer. Under this method, you call up the account detail in your accounting software, and review the appropriateness of each transaction listed in the account. For example, if you are reconciling your trade accounts receivable account, the balance in the account should exactly match the total of your open accounts receivable report. * Analytics review. Under an analytics review, you create an estimate of...