Account Reconciliations Gone Bad

Any good accountant and most savvy business people understand the value of frequent account reconciliations. They’re the single best way to ensure the accuracy and completeness of your financial records; especially cash account reconciliations. However, a thorough review of this process should still be performed as there are several mistakes or work-arounds that could have been made and without further review could go unnoticed for quite some time.

First, if you use online banking to download transactions automatically to your QuickBooks file, there is a huge potential for duplicates. Some of the common ways this happens are when two different people update online banking and use the same date as opposed to only pulling transactions since the last upload. Unfortunately, QuickBooks will pull in the same data twice and if you are not careful you could add it to your register. A side component of this issue is adding transactions to the register without properly matching them to the already existing transaction generated by the system such as bill payments. In this scenario you would have overstated expenses and have a skewed book balance of cash.

Second, if you have ACH payments, handwritten checks, or any transaction not originating from the accounting system, a lazy accountant may just use the write checks function to record the transaction. This causes a couple of problems: 1) your accounts payable is likely to be misstated as it includes bills that have actually already been paid, and 2) your expenses are also likely to be overstated since you have recorded the transaction twice – once through entering the bill and again through the writing of the check. At this point you’ve also cleared a transaction that does not tie to a bill. If this goes undetected, you could risk paying the same bill multiple times.

Lastly, ensure that all customer payments are applied to outstanding invoices as opposed to just using the make deposits function. Similar to the scenario above, this mistake would result in an overstated accounts receivable as well as top line revenues. If this goes undetected, you may harm your company’s reputation by incorrectly placing customers into collections.

As you can see, all of these issues translate to inaccurate financial reporting and can create a real mess to clean up. One of the scarier aspects of this is that it is still possible for your bank reconciliation to reach a reconciling difference of zero with no indication of mistake. In order to mitigate these risks, ensure that your staff is properly trained to update bank activity. It is crucial that you perform a review of the detailed account reconciliation report each month end paying specific attention to uncleared items. To implement this process, call TGG and we will help.

Written by:
Andrea Murray
TGG Accounting

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