What is a Customer Reconciliation Account? Types & How It Works

What is a Customer Reconciliation Account? Types & How It Works

The corporate world operates on credit sales. In addition, credit sales play a crucial role in maintaining the relationship between a company or business as well as a client and a customer. 

Credit sales are an easy option for both a business and a customer. It enables a business entity or a company to expand its sales easily. 

In addition, it becomes easier for clients and customers to pay after a specific time. 

A bill is issued by the company to the customer in credit sales. But after a specific period, these bills are protected or covered. But it is essential to manage the account and transactions coming in properly. 

Here is when customer reconciliation and customer reconciliation account comes into action. 

This activity is crucial for every business and customer. It is a process where statements of any company are analyzed and made sure that there are no inconsistencies or inaccuracies. 

Customer reconciliation is also very important to make sure the frauds are exposed. If you are looking for an overall guide on the process of reconciliation then ESPECIA is here with accurate results. 

Account reconciliation meaning

The process by which the balance as well as bills of the customer is compared with the accounts recorded or received in the ledger is known as account reconciliation. 

During the accounts closing activity customer account reconciliation also takes place. Account reconciliation takes place one month before the gathering of monthly statements. 

Customer account reconciliation and statements play an important role, especially for account managers as well as internal auditors. 

Account reconciliation and statements are also approved that there is no accuracy in the financial statements of a company that is measured or gathered. 

If any irregularities or accuracy is seen in the statements of a company or any other business one month before the gathering of statements then it can be corrected as soon as before it creates any trouble.

Recon account meaning

The recon meaning in accounting stands for reconciliation. It means that the accounts are being reviewed or surveyed to check whether there is any inconsistency or not. 

The purpose of a recon or customer reconciliation account is to ensure that there are no frauds or inconsistencies on both ends of payments. 

In addition, it makes sure that the bank or payment statements are accurate on both ends of an agreement for the business. 

Types of Account Reconciliations

Different types of account reconciliation take place in any business or company. These main types of account reconciliations are given below.

  • Vendor Reconciliation

Industry constellation processes the balance provided by the supplier is compared with the internal statements as well as a payable ledger. To conduct the process of vendor reconciliation the statements are required to be asked because they are not automatically sent or provided

  • Bank Reconciliation

The most common type of reconciliation process that takes place in the business world is Bank Reconciliation. In this process, the statements of the bank taking place internally in the company are compared with the transactions taking place in the bank.

  • Customer Reconciliation

As mentioned on this page, customer reconciliation means the credit services held to the customer justify the statements or amount present or mentioned in the general ledger. 

  • Intercompany Reconciliation

Inter-company reconciliation means when a company is held under a set of Companies then the parent company has a reconciliation process concerning other companies to make sure that all accounts are justified. 

  • Business Specific Reconciliation

Business-specific reconciliation is the process of reconciliation depending on the type of business. For example, a business or a company that is involved in the financial services or financial sector needs a reconciliation process more frequently than others.

Financial reconciliation meaning

You must be wondering what is sales reconciliation. Financial or sales consideration means that both ends of a contract or payment are consistent. 

In other words, it means that both sets of amount leaving as well as amount entering in an account match.

To check these both payment balances are matched before the fiscal period ends. Financial reconciliation or sales reconciliation is also used as proof to resolve any cases as well as disputes. 

A business or a company can do the process of financial reconciliation or sales reconciliation by reviewing the documents that are involved in financial payments on both ends. 

These documents are reviewed by examination of the transitions or statements on the ends of the company and concerning the customers or recipients. 

Analytical review and examination can also be done by the company for this process.

Process of reconciliation

The process of reconciliation takes place in the presence of two types of information. These types of information or resources include General Ledger as well as Receivable Details. 

As mentioned, the process of customer account reconciliation is a process in which statements are matched in the detailed amount at the ends of the customer and the company. 

It is made sure that the statement matches the amount mentioned in the general ledger. 

The process of reconciliation takes place to make sure that the amount mentioned in the general ledger is justified. The processes concerning customer reconciliation accounts are given below.

There is an account that deals with all the statements or payments that justify the amount speed by the customers. 

This account is known as a customer reconciliation account or general ledger. The recordings of all statements are done take place in the general ledger bank account. 

At the end of this process, it is made sure that the subtotal of all the statements in the sub-ledger account is equal to the total number of statements at the end of the general ledger bank account. 

The buildings of unpaid customers are also made into a report. For the process of account reconciliation, the balances at the end of each report are matched. 

It is not always mandatory that the results of account reconciliation are consistent. 

Sometimes there can be differences in the statement at any end during the conduction of customer account reconciliation. 

The reason that can cause this inconsistency in the reconciliation process is that the entry was only made in the general ledger but not in the subsidiary ledger. 

This is one of the most common reasons that create differences or inconsistencies during this process. 

Another common reason that can be responsible for this difference is the entry was made in another account than the one that was supposed to be. But this is the least possible. 

This is because the entry is automatically made in the in which it is supposed to be. The final reason that can be responsible for this difference is the difference in the dates of the statement. 

It can either be a mistake or fraud. The process of customer reconciliation takes place at the end of the account closing month before the gathering of final financial statements. 

If the process of customer reconciliation is not conducted or failed then it means that there is an inaccuracy in the results. The customer reconciliation process should also take place at the end of the fiscal year. 

This enables the detection as well as the removal of all the inconsistency and inaccuracy in the financial statements of the company. It also makes sure that there are no errors when the statements are checked by external auditors. 

Here are the main steps that take place in the process of customer account reconciliation.

  • The data is collected which is to be compared. In this scenario, the statements are collected on both ends of the agreement or two entities. Whether the process takes place automatically through any software or manually if errors are occurring in the statements then the company is notified.
  • The next step is to check the funds that are outgoing from the company's account. These funds can include ATM transactions as well as checks. It is made sure that the amount present or the statements at the end of every bank account matches.
  • The way outgoing funds are calculated and checked incoming funds are also calculated and cross-checked. If there are any errors in the statements you will be notified.
  • Bank errors and inconsistency can occur in the process of reconciliation. If there is any bank statement that it is not supposed to be or there is any missing statement then take appropriate actions immediately.
  • The process of reconciliation finishes when the statements on both ends matches and the errors have been corrected. During the correction of these statements and errors make sure the changes are updated and recorded. If it is done through any automatic software then it will be recorded naturally. 

Customer reconciliation account benefits

The common reasons and benefits of customer reconciliation accounts and their importance are given below.

  • The most important reason for a customer reconciliation account is a better understanding of the financial matters of a company or business. It makes sure that the business and financial processes involved in it are protected and secured. It also makes sure that every financial statement is legit.
  • There can be many reasons why inconsistency is reflected in the balance of the accounts and transactions. These reasons might not be as it seems. To understand these reasons deeply, the reconciliation of customer accounts is important. Overdraft is avoided by the process of reconciliation and it does not matter what type of business it is.
  • Reconciliation also helps to check the balance of different accounts and transactions. When the balance of the customer reconciliation account is compared with others, the accuracy of financial records is checked and stated.
  • As per government regulations as well as tax regulations, the balance sheet of every business and company should be accurate and right. Customer reconciliation accounts and processes in a regular time and accurate manner makes sure that there are no errors on the balance sheets. If any errors are found in the balance sheet through external tax officers or in any other process then it can cost the reputation of the company and much more. 
  • The chances of risk as well as fraud can also be deducted and reduced with the process of customer account reconciliation. If any errors are observed in the transactions or statements of balance sheets sooner than later then they can be corrected and the reputation of the company can be protected before any permanent damage occurs.

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The process of reconciliation is important in every business. It takes a lot of time to complete this business if it is done manually. 

It is easier through software and automatic processes. During the customer reconciliation account, it is made sure that the outgoing funds and incoming funds make the same final statements. 

If they are not the same or match in the end then it can state the presence of errors and inconsistency. 

There can be many reasons for this consistency but the errors should be corrected on time. It is also done to detect fraud if they are included.

FAQs Related to What is Customer Reconciliation Account

1. What is a customer reconciliation account?

Customer reconciliation is a procedure by which the bills or statements coming into an account are checked concerning the company. This procedure takes place during the account closing period. It is usually conducted before the issuance of financial statements.

2. What are the reasons for customer account reconciliation?

There are various reasons for customer account reconciliation. One main reason for this process mistakes. It is carried out to make sure there are no mistakes and errors in the statements of both ends. If there are any mistakes then it is also carried out to find out missing transactions and the reasons for errors. It is used to correct errors on time and make sure there is no fraud included.

3. What are the stages of reconciliation?

The main stages of reconciliation include Contrition, confession, absolution, and satisfaction.

4. How do you prepare a customer reconciliation statement?

The statements of the payable ledger as well as the receivable ledger are compared. Track down the statements and make sure there are no errors. In case any errors are found correct them as soon as possible.

If you are looking for any CA Services,  Secretarial ServicesDue Diligence services  in Noida, Delhi, Gurgaon or anywhere in India, write to us at accounts@especia.co.in. Or Call On :(+91)-9711021268 +91-9310165114

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