What is not cumulative voting

Accounting coordination: everything you need to know

The reconciliation of the accounting - also called reconciliation of accounts or English reconciliation - is an accounting process that is often unexpectedly intense. Many entrepreneurs and accountants know from their own experience: Accounting is not just about adding up a few numbers from receipts. After all receipts and money movements have been booked, the accountant has to coordinate everything until the bookkeeping is correct and everything pays off.

What is the accounting reconciliation?

A company must use the reconciliation process to ensure that the correct balances are shown in the accounting accounts. Without coordination, bookkeeping is often not meaningful enough. For this reason, the accounting should be reconciled on a regular basis.

The reconciliation of the bookkeeping requires the comparison of two data sources: your data from the bookkeeping and the facts outside your bookkeeping. The facts outside of your bookkeeping typically come from another internal body or a third party such as the bank, from suppliers, customers or social insurance companies.

The aim of the reconciliation is to match the figures in your bookkeeping with the external data: for example, the cash account in your bookkeeping must correspond to the actual cash balance on a certain date.

This comparison gives the accountant the certainty that the values ​​recorded in the accounts are correct and complete and that all accounts in the bookkeeping are correct.

The reconciliation of the accounting is mostly a manual process: you have to compare Excel files, bank account statements, listings from external sources booking after booking. If a booking is missing, the corresponding receipt must be obtained and booked. If there is too much posting in the account or the amount is incorrectly posted, the accountant must rebook or correct it.

The use of modern software with automation functions can considerably simplify the coordination work: This is especially the case if your software can automatically and seamlessly post electronic data from external sources in the accounting. In this way, differences should not even arise in theory. If the transactions are consistent right from the start, coordination is quick.

Companies are legally obliged to prepare consistent annual financial statements. Coordinated bookkeeping is an essential basis for this. An auditor will ask you to provide evidence of the balance sheet: The reconciliation of the balance sheet accounts (i.e. evidence that your balance sheet accounts match the actual values) is one of the most important documents that an auditor reviews.

Types of reconciliation of accounting

Cash register vote

Cash balances in accounting usually diverge due to many minor mistakes in handling the cash in the cash register. They have to find these faults too. You have to enter cash withdrawals that have not been booked. You can find some tips on voting in our entry Cash books. You will also find our template cash book sales delivery form.xlsx for free download.

Bank account reconciliation

Since practically every company has at least one bank account, it has to coordinate this. To do this, they compare the monthly bank account statements with the account sheet from the bookkeeping. If the balances from the bookkeeping match the bank accounts, a great deal has already been achieved.

Customer coordination

Here they check whether there are any inconsistencies between the posted income and allocated payments. Are all bills paid in full? Are discounts posted correctly? Have the foreign currencies been recorded at the correct rates? Does the accounts receivable subledger match the general ledger?

Supplier coordination

To coordinate with suppliers, compare the lists in the accounts payable subledger with a list of past transactions made available by the supplier. On the key date, the outstanding amounts in the accounting should correspond to the outstanding amounts reported by the supplier.

Social Security Vote

The social insurance companies issue their invoices as a payment on account based on values ​​declared in advance. If an employment relationship changes during the year (e.g. change of workload, maternity leave, wage increases, termination, new hires) and these adjustments are not reported in full, the amounts invoiced by the social insurance funds and the reality in your payroll accounting diverge. Therefore, all social security accounts must be reconciled especially at the end of the year. In the balance sheet, they must show the actual assets or claims of the social security that match the final account.

Credit card voting

Both credit card income and credit card expenditure must be reconciled.

If your customers pay for sales by credit card, they will usually receive the collected income a few days later - minus commissions. This does not make reconciliation of accounts easy. Read more about the best booking methods for credit card sales in our free e-book Credit Cards in Accounting. You must ensure that the claims on your balance sheet against the acquirer are consistent.

You also have to reconcile expenses paid with the company credit card. As with bank account reconciliation, you must ensure that all transactions are fully and correctly booked in the accounting. Foreign currency transactions in particular are tough, as the sums on the receipts and the actual credit card charges usually do not match.

Reconciliation of current accounts

Owners often withdraw money directly from the bank account or from the till or pay expenses with their own cash or their private credit card. Such transactions are best booked against a current account on the liabilities side of the balance sheet. You have to make sure that these transactions are also completely reported and, above all, that the owner agrees to the balance of the account.

Coordination of the VAT accounts

The accountants call the reconciliation of the VAT accounts "verification". Here you have to check whether the correct VAT or input tax rates have been settled for all transactions. After the check has been carried out and the VAT settlement has been booked, all VAT accounts must be zero.

Coordination of the inventory

To do this, companies must periodically take an inventory. During the inventory, they count and evaluate all items in the warehouse. After that, the stocks must be coordinated with the accounting department and corrected.

You have to do the same thing with the assets capitalized in the balance sheet: Are these still available and valuable?

Intercompany reconciliation

Intercompany reconciliations are carried out by companies that are part of a group. It is essential that internal group reconciliations are carried out so that the parent company can prepare consolidated financial statements. Intercompany reconciliation can be particularly challenging if the accounts are posted in different currencies and the amounts cannot easily be compared due to foreign currency differences.

Loans or dividends are often shifted back and forth between parent and subsidiary companies. The group companies usually do not pay each other for sales, but rather settle the balances via corresponding current accounts.

The accountant must reconcile the posted values ​​on the assets and liabilities side of the balance sheet with the balance of the account of the affiliated company. In this way, he can ensure that all artificial profits and losses from intra-group transactions are eliminated in the consolidated financial statements and that the balance sheet is not falsely inflated.

Coordination of expense and income accounts

In order for the income statement to be meaningful, it is important that you reconcile these accounts as well. In doing so, you should ensure that the scope for interpretation in the account assignment was used as consistently as possible. For example, are the same expenses always posted consistently to the same expense account? Is the separation between direct and indirect effort correct? Is everything complete?

When should the accounting be coordinated?

The frequency of voting depends on the type of deal and the type of voting. In principle, you can only rely on your bookkeeping if it has been coordinated. At Run my Accounts, we take our customers' wishes into account. We even coordinate a lot of bookkeeping on a daily basis.

We recommend that fast-growing companies vote at least once a week. This is particularly important if the expenses are even higher than the income, the burn rate is high and liquidity is scarce.

Even if an entrepreneur does not necessarily attach great importance to the informative value of his bookkeeping during the year: You should definitely coordinate the bookkeeping at least once a month, even for smaller and less complex companies. If you come across differences, they are much easier to understand if they have only recently arisen. If you wait longer, many of the necessary documents are gone forever, transactions can no longer be traced or you can no longer remember individual business transactions. Regular coordination processes make it easier to identify and understand errors.

Procedure for reconciliation of accounts

Before you start reconciling your accounts, you should always think about what to expect on the books. Which numbers would be plausible for you? This makes the coordination work a little more efficient and targeted. Don't let the excuse "It'll be right!" resign.

Do the opening balances match?

Compare the account from your bookkeeping with the external document (e.g. the bank account statement). Make sure the opening balance is the same.

Determine the difference in the closing balances

Compare the closing balances from your accounting with the external document. If there is a difference, you have to look for it. The difference does not necessarily have to consist of just one booking. There could be several individual transactions that were not posted or incorrectly posted.

Mark unrecorded or incorrect transactions

If there is a difference, proceed step by step and compare the balances on different key dates until you find a difference. Check whether a transaction is missing or a transaction with the wrong amount has been booked. Sometimes it also happens that a transaction was posted to the wrong account and is therefore superfluous on the account to be reconciled, e.g. if a bank transaction was posted to the wrong accounting account.

Creation of the voting report

After all missing or incorrect transactions have been posted or corrected, the closing balance of the account to be reconciled should match the closing balance of the external document.

Often there are also discrepancies due to value date problems: at banks, the value date and posting date can differ. They may have been posted in other time zones so that the closing balances may not even match.

If there are differences, this requires documented evidence of the discrepancy in the voting report. This must record the reason for the deviating balance and explain it in a quantified manner. The preparation of this report will facilitate the next reconciliation as these differences explain why there is a discrepancy between the opening balances of the two different documents.

Accounting coordination: a lot of work!

Bookkeeping is not completed after the available documents have been posted. Many inexperienced entrepreneurs think that accounting is done quickly. But all too often, reality quickly catches up with them: the coordination of the accounting department is tough. It can sometimes take hours to find individual errors in the accounts.

Therefore, an entrepreneur should carefully consider whether he really wants to do the bookkeeping himself. Too often the effort is completely underestimated. The bottom line is that outsourcing to a specialist is usually the cheaper option. Especially when you consider how much productive time can be gained on your own core competency.