Record to report / R2R – Reconciliations

General

 

We shared stuff on bank reconciliations.

http://faoblog.com/processes-record-report-r2r-reconciliations-bank-2/

Like I mentioned,  I will cover the basic reconciliation, as to what gets added and what gets reduced and then come back to the bank reconciliations post that.

With most of the accounting students and newcomers to the BPO world, this remains a really confusing thing, and when preparing any reconciliation, most of the mistakes happen here.

This stems from the fact that there are two entities involved. The accounting entries involved have two aspects to each entry.

Let us understand this confusion using a sample entry. Your client’s business deposits a cheque in the bank account. It will pass an entry as under:

Bank account Dr.                              $ xx.xx

To Customer account                                     $ xx.xx

The bank will pass the following entry:

Funds received account Dr.     $ xx.xx

To Your client account Dr.               $ xx.xx

So if you see, the transaction component in bold above reflects the same component of the transaction, where you debit the account maintained by you and the bank credits a similar account. Thus the bank in the statement it will send will show the amount on the credit side, where as your accounts section will show the amount on the debit side. Technically, the debit in your books will be a credit in the bank’s books.

This is where the confusions will step in. I have seen even some professionals making this mistake when in a hurry.

So, what is a better way of doing this?  Read the next post……

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Have you been following our accounting blog?

http://faoblog.com/category/accounting-core/

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