What Does Reconcile Mean in Accounting?
I am sure we are all aware of the standard definition of reconcile but what does it mean when we are talking about money, and more specifically, about money in the accounting field?
Well, reconciling is a pretty basic accounting procedure where the accountant’s records are compared with the bank statement of the company to see if everything ‘checks out’ or if the numbers match. Sometimes, a discrepancy is apparent, but it is only because of the time difference. For example when something has not been recorded yet or when things have been recorded on one but not the other and then there is an issue.
Sometimes if an outside accounting is reconciling, they will not realize that the business is using a system different from GAAP, or the generally accepted accounting principles. The majority of businesses do follow GAAP (There are books upon books about the GAAP system), so much so that it is presumed unless stated otherwise. If these principles are not used, it can be very easy for the person reading the documents to not understand what they are looking at, or worse presume they know and report something incorrect to the company.
Think of GAAP as the standard of standards. No one really uses anything else and not disclosing that it does makes the company legally liable for any misunderstandings associated with it. After all, it’s not like someone just tossed together the rules of GAAP in a night and said ‘I guess this works’!
But it is not all cut and dry. The G in GAAP does stand for general, and you have to realize that these guidelines can be open to interpretation. Sometimes this can lead to creative accounting, which I am sure you’ve heard of before.
Creative accounting, or massaging the numbers, is when a business pushes the numbers a little to make the company appear more profitable on paper then it is in reality. It is never right, but this is not always a serious issue. Not unless it gets out of hand. Because this sort of behavior can lead to accounting fraud, or cooking the books (A little salt, some basil…).
The end result of accounting fraud is not good for anyone. Just look at the news what happened to Enron was accounting fraud, and you need to consider that massaging the numbers a little could be the first step to something worse.
Tired of trying to figure out where the money is and where it should go? Let KJ Accounting and Consulting Group, a Farmington bookkeeping firm, help you with your accounting and book keeping needs. We have set up My Simple Accounting as your one-stop resource for our consulting services, trainings and products to help you with all of your accounting needs.
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