Today I will explain you the concept the reconciliation. In accounts reconciliation is very important and tally makes it much easier job
In Accounts reconciliation is done for the following kind of transitions
1) Bank Reconciliation
2) Party Statement reconciliation
3) Tds challans Reconciliation
In business receipts and payments are done through bank/cheques etc.
Now whenever a firm issues a cheque it is accounted in the books of account of Issuer Company immediately however the same may not be entered in the books of account of receiver party or the bank itself due to many reasons.
It results in mismatch of balance between the books of accounts of related parties on a particular date.
Let’s assume Red & White Bros have issued a cheque of Rs. 50K to its suppliers m/s Anmol brothers as on 30.04.2009.
M/s Anmol Bros. receives the cheque on date 2.5.2009 and deposit it to their bank account which is credited into their account on 5.5.2009.
If the Red & Bros. Prepares a trial balance as on 30.4.2008, its bank balance will show a less balance of Rs. 50 k comparing to its actual bank balance while Rs. 50K is still lying in his bank account
Here it is needed to reconcile the bank statement with the ledger account
The format of bank reconciliation is as follows:
1) Balance as per books of account of the company as on date XXXXX
2) Add : cheques issued however the same is not XXX
3) cleared by the bank as on date
4) Less : cheques deposited into the bank which is not cleared as on date XXX
BALANCE AS PER BANK STATEMENTS XXXXX
In another meaning, debit the bank accounts for whatever the bank has credited to your account and credit the bank for whatever the bank has debited (charged) to your account
The same way reconciliation is done for transaction with suppliers and customers and other third parties
Finally to avoid mistakes in accounts and finance there is a very famous quote in Gujarati Business
(1) “ Lai ne lakh “ : means first receive the receivables/cheques/cash /materials etc and only after then account it
(2) “Lakhine Aap” : Means first account a transaction before you hand over the cash/cheque/payment/issue of materials etc.
These quotes are very important to avoid any mistake in accounts and there is a vision behind the quote.