Other Distortions

This section mentions other items that can distort the true value or representation of information on financial statements. It provides information about two primary examples of distortions – accounting errors and unusual one-time gains or losses.

A discrepancy is an accounting error that was not caused intentionally, meaning the books don't properly match.


LEARNING OBJECTIVE

  • Describe the process of reconciliation as a means of finding and resolving discrepancies


KEY POINTS

    • At the end of each month when you get your bank or credit card statement, you will need to reconcile each account in your accounting program against the statement.
    • You will want to double check that you entered the correct starting and ending balances for the account, and if you did, go back through all the transactions until you find the problem. Then correct it and you can proceed with your reconciliation.
    • In accounting, reconciliation refers to a process that compares two sets of records (usually the balances of two accounts) to make sure they are in agreement.
    • It depends on the type of discrepancies, most accounting discrepancies are due to the lack of accuracy (decimal places) when breaking down a large figure. Although more decimal places in your calculations can help solve discrepancies it can look rather unsightly on a report.

TERM

  • reconciliation

    Process of matching and comparing figures from accounting records against those presented on a bank statement.


At the end of each month when you get your bank or credit card statement, you will need to reconcile each account in your accounting program against the statement. This process double checks everything you entered for the month, making sure you didn't miss any transactions, enter duplicate transactions, or enter the wrong amount for a transaction. It also marks the checks that cleared that month as such, so you know how many outstanding checks you have floating out in the world.

A discrepancy is an accounting error that was not caused intentionally. An accounting error can include discrepancies in dollar figures, or might be an error in using accounting policy incorrectly (i.e., a compliance error). Discrepancies should not be confused with fraud, which is an intentional error in an accounting item, usually to hide or alter data for personal gain. A discrepancy just means something doesn't match. You will have the option to go back and locate the discrepancy, or to reconcile anyway. Unless the discrepancy is very small you should go back and correct the problem. You will want to double check that you entered the correct starting and ending balances for the account, and if you did, go back through all the transactions until you find the problem. Then correct it and you can proceed with your reconciliation.

In accounting, reconciliation refers to a process that compares two sets of records (usually the balances of two accounts) to make sure they are in agreement. Reconciliation is used to ensure that the money leaving an account matches the actual money spent, this is done by making sure the balances match at the end of a particular accounting period. Well reconciliations refers to two sets of records (what is being put in the well compared to what actual costs are being spent). The two numbers are compared to assure that they balance at the end of the accounting cycle. There is usually a difference. A robust reconciliation process improves the accuracy of the financial reporting function and allows the Finance Department to publish financial reports with confidence.


Reconciliation of discrepancies: Bank reconciliation statement

It depends on the type of discrepancies, most accounting discrepancies are due to the lack of accuracy (decimal places) when breaking down a large figure. Although more decimal places in your calculations can help solve discrepancies it can look rather unsightly on a report.



Source: Boundless
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