Reconciliation in the AP Process

What is reconciliation in the AP process?

Reconciliation is the process of comparing two sets of records to ensure that they agree. This is done to ensure the accuracy and completeness of the accounting records.

Table of Contents

Reconciliation in the AP Process

The two main types of reconciliations.
Steps in the reconciliation process.
Benefits of reconciliation in accounting.
Reconciliation in the AP process.
Why is reconciliation important in the AP process?
How to reconcile the AP process.
Additional benefits to reconciliation in the AP process.
Reconciliation, sometimes synonymous with “close.”
How Airbase helps with reconciliation.

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The two main types of reconciliations.

Internal reconciliations: These reconciliations are performed within the accounting department to compare different sets of records within the same system. For example, an accountant might reconcile the general ledger to the accounts receivable subledger to ensure that all sales invoices have been recorded in the general ledger.
External reconciliations: These reconciliations are performed between the accounting department and another party, such as a bank or vendor. For example, an accountant might reconcile the bank statement to the cash account in the general ledger to ensure that all deposits and withdrawals have been recorded accurately.

Steps in the reconciliation process.

Identify the two sets of records to be reconciled.
Identify the key differences between the two sets of records.
Investigate the causes of the differences.
Make the necessary adjustments to reconcile the two sets of records.
Document the reconciliation process.

Reconciliation is an important part of the accounting process because it helps ensure the accuracy and completeness of the accounting records. By reconciling different sets of records regularly, accountants can identify and correct errors and omissions before they have a material impact on the financial statements.

Benefits of reconciliation in accounting.

Reconciliation helps to ensure that the accounting records are accurate by comparing different sets of records and identifying any discrepancies.

Accountants use reconciliation to improve efficiency by identifying and correcting errors and omissions early on.

Reconciliation can help to reduce risk by identifying and mitigating potential problems.

To ensure compliance with financial regulations, reconciliation can demonstrate that the accounting records are accurate and complete.

Reconciliation in the AP process.

Reconciliation is a critical process in the accounts payable (AP) process. It involves comparing two sets of records to ensure that they match. In the AP process, reconciliation is typically performed between the following:

The general ledger accounts payable balance.
The accounts payable subledger.
The vendor statements.

Reconciliation can be done manually or electronically. However, manual reconciliation is time-consuming and error-prone. Electronic reconciliation is more efficient and accurate, but it requires the use of specialized software.

Why is reconciliation important in the AP process?

Reconciliation is important in the AP process for a number of reasons, including:

To ensure the accuracy and completeness of financial records: Clean financial records are important to help make sound business decisions, comply with financial regulations, and report accurate financial information to shareholders.
To detect fraud: Reconciliation can help to detect fraud by identifying discrepancies between the different sets of records. For example, if the vendor statement shows a different amount than the accounts payable subledger, this could be a sign of fraud.
To prevent errors: Reconciliation can help prevent errors by identifying and correcting them early on. For example, if a vendor invoice is accidentally entered into the accounts payable system twice, reconciliation will identify the error so that it can be corrected.
To improve efficiency: Reconciliation can help improve the efficiency of the AP process by identifying and eliminating bottlenecks. For example, if reconciliation is done manually, it can be a time-consuming process. However, electronic reconciliation can help to automate the process and save time.

How to reconcile the AP process.

The specific steps involved in reconciling the AP process will vary depending on the size and complexity of the organization. However, the general steps are as follows:

Gather the necessary records: This will include the general ledger accounts payable balance, the accounts payable subledger, and the vendor statements.
Compare the records: This involves comparing the different sets of records to identify any discrepancies.
Investigate any discrepancies: If any discrepancies are found, it is important to investigate them to determine the cause.
Make any necessary adjustments: Once the cause of any discrepancies have been determined, it is important to make any necessary adjustments to the financial records.
Document the reconciliation process: It is important to document the reconciliation process so that it can be audited later.

When completing the steps above you can improve your process by making sure it is done on a regular basis, relies on electronic reconciliation software to reduce risks, and is assigned to different people to reduce the risk of fraud.

Additional benefits to reconciliation in the AP process.

Improve their supplier relationships: By reconciling their accounts payable on a regular basis, organizations can identify and resolve any issues with their suppliers in a timely manner. This can help to improve their relationships with their suppliers and build trust.
Reduce their risk of late payments: By reconciling their accounts payable on a regular basis, organizations can identify and pay their invoices on time. This can help to reduce their risk of late payments and avoid late payment fees.
Improve their cash flow: By reconciling their accounts payable on a regular basis, organizations can get a better understanding of their upcoming cash flow obligations. This can help them make better decisions about their cash flow and avoid any unexpected cash flow shortages.

Reconciliation, sometimes synonymous with “close.”

Overall, reconciliation is an essential process for any organization that wants to maintain accurate financial records, prevent fraud, and improve the efficiency of its AP process. This may be why some people refer to the closing of the books as “reconciliation.” Though technically not the correct definition, it’s worth knowing that insiders often use the term this way.

How Airbase helps with reconciliation.

Airbase automates both internal and external reconciliations.

Airbase automatically matches invoices to purchase orders to make an important aspect of reconciliation easy. Airbase also prepares a report of any discrepancies between Airbase and the GL to surface issues and speed up the reconciliation process.

Airbase debit and credit entries that appear in bank account statements will provide more context on the invoice being paid and the overall transaction. This helps in the reconciliation process.