Record to report / R2R – Reconciliations
Intercompany reconciliations were started in the last post
As different units of your client conduct their business, and there are transactions between the units, there will always be differences between the financial numbers recorded by them. Ideally these differences should not exist. So, why do these differences happen?
There could be thousands of reasons for this, some of the more regular ones are listed below:
- Timing difference – one most popular cause – material may be in transit, the advice for the entry takes time to reach, month end entry intimation is received late, email not read for advice and more
- Missing advices – the advices for inter unit entries got missed in transit
- Different values – the basic values of material moved from unit to unit are different in the two units, so the quantity is properly recorded but the unit transfer price being different causes a balance upset
- Uninformed debits / credits – some debits / credits may happen at a unit and may not be informed to the other units
- Disputed entries – one unit may make some entries, which may not be accepted by the other unit or may have been disputed
- Exchange rate differences – For inter country transactions this is a major source of difference as each unit may end up recording the transaction at a different exchange rate, normally every large company defines norms for write-off of a certain percentage of variation
So why will companies do inter-company business?
Have you been following our accounting blog?
Subscription and Guest Post:
You may subscribe to the blog from the subscription box on the opening page of the blog. We have enabled a button on the top of the first page, which will enable you share your posts. If you wish to write about any of the current streams, you can do it at https://faoblog.com/guest-post/. We will review your post and release it within 48 hours of your posting.
Lead – Finance & Shared Services @ OISL (Captive offshore center of Olam International Limited)
Reconciliation is used to ensure that the money leaving an account matches the actual money spent, this is done by making sure the inter-company balances match at the end of a particular accounting period. Normally there will be a difference between numbers recorded by them & majorly are due to:
1.) Unit X shipped goods to Unit Y on last day of accounting period. Unit X record sales in that period but Y records purchase in next accounting period.
2.) Unit X receive goods from Unit Y in next accounting period but the actual sales/ shipment was recorded in Unit Y in current accounting period.
3.) There might be an issue in recording transactions and the I/C reconciliation team adjusts for differences in the values that are recorded by the buyer entity and the seller entity for inter-company transactions. If, after adjustments for currency differences, the recorded values do not match, I/C reconciliation creates balancing entries.
4.) Bank payments/ receipts are recorded in next accounting period due to delay in bank transfer though the receipt/ payment was made in current accounting period.
To ensure the reliability of the financial records, reconciliations must, therefore, be performed for all Balance Sheet accounts on a regular and ongoing basis. A robust reconciliation process improves the accuracy of the financial reporting function and allows the Finance Department to publish financial reports with confidence. There should also be an year end audit that has to be performed and confirmation should be taken from all units for their inter-company balances.
What’s up, everything is going fine here and ofcourse every one is sharing data,
that’s genuinely fine, keep up writing.