What Is an Accounts Receivable Reconciliation?
Customer invoicing helps businesses make more sales and gives customers more time to pay for their purchases. Many firms grant their customers short-term credit, delivering goods or services and giving the customer a set period of time to pay. The accounts receivable process tracks issued invoices and matches them with incoming payments. A company must manage its accounts receivable for accuracy and prompt payment as part of good overall cash flow management.
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Accounts Receivable
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The accounts receivable asset account tracks payments due from customers for goods or services provided by a business. The provider usually specifies a payment due date of 30 or 45 days, for example. The firm might also offer a discount for early payment, such as "1% 10 net 30", meaning the customer can reduce his balance payment by 10 percent if he pays within 10 days, or he can pay the full balance in 30 days.
Reconciling
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Managing a profitable business requires knowledge of your current cash balances and the amount of cash you can expect to receive within the next 30 to 60 days. It is not sufficient to rely on the accounts receivable balance in your accounting software -- mistakes do happen, and the business could have less cash coming in than the records show. To validate the accounts receivable information, accountants periodically compare the information in the accounts receivable account to information contained in the check register and other documentation.
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Setup
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An accountant sets up a spreadsheet with different columns to track pieces of information during the reconciliation process. The accountant populates the spreadsheet using records of invoices issued and checks received. The Information should include the customer name, invoice number and total, amount paid and any balance due. When the accountant has compiled all of the information, he prints a report from the general ledger that lists open invoices in accounts receivable.
Comparison
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The accountant must compare his spreadsheet data to the accounts receivable records, item by item. Any discrepancies must be resolved. Common errors include transposed numbers on a check or invoice entry, a lost check that was recorded as received but never made it to the bank, or partial payments that were applied to the wrong invoice or customer account.
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