Interior design companies have many things to deal with, and the last thing they would want is to go through the hassle of account reconciliation. The thing about reconciliation is that it is like a puzzle. You must put all pieces in place to know which one is missing.
The same applies to account reconciliation, where you have to go through the entire accounting records and transactions to find a single mistake or calculation error. Nevertheless, we will cover a few points to simplify the process for your interior design company. Let's begin by understanding more about accounts reconciliation.
What is Accounts Reconciliation?
As a business, you will have to match and check if your general ledger balance is correct and has the right figures. That is why accountants match it against an external source, such as a bank statement, to check its authenticity.
Usually, account reconciliations check the difference between the ledger balance and the documentation, such as receipts or banks statements. If they are the same, it means there are no issues with your financial statements. If not, you will have to reconcile your accounts.
Importance of Accounts Reconciliation
Accounts reconciliation plays a vital part in ensuring that your interior design company's financial statements are accurate. Any mistake can be identified using the process, which allows the company to make instant and necessary changes to their financial statements.
Moreover, it allows you to comply with the guidelines set by the Internal Revenue Service. Since the financial statement determines your profit and taxes, a wrong figure can result in many problems relating to taxation. Let's look at the common factors that lead to accounts reconciliation and how you can avoid them.
Discrepancies That Lead to Accounts Reconciliation
Various factors and discrepancies can be the reason your financial statements don't match up. A missing transaction or even a simple mistake in calculation can make you go through such a hassle. Below are some known discrepancies behind account reconciliation.
The prime reason why your statements don't match with an external source is due to a missing transaction. For instance, your bank statement shows a credit card bill of $15,000. However, the amount in your statements for the credit card bill is $12,000.
After going through your records, you find a transaction of $3000 from a particular date missing. The missing transaction is the reason your sheets don’t match with supporting documents. Therefore, you need to create an adjusting general ledger to record all such missing transactions.
Another possible reason for account reconciliation is the calculation mistakes when recording a particular transaction. An example is that your statements show the bank account balance at $25,000. On the other hand, the actual bank balance is $25,900.
Upon reconciling your books, you found a calculation error where you recorded the amount received from customers for $1000 as $100. As a result, there is a difference of $900 in your books and the supporting document. You can record the figure of $900 in the adjusting journal entry.
How Can Your Interior Design Company Simplify The Process?
The above discrepancies are just a few that you can find in your statements. There can be various other factors, and going through account reconciliation can take up crucial time and resources for your interior design company. So, here are a few things you can do to make the process simple for you.
1. Automate your System
If you still rely on traditional methods to record your transactions, you’re making things harder for yourself. Instead, choose the best accounting software for your business. Since there is a plethora of software available, you might wonder which one to choose.
To make things easy, you can choose the one that sits well with your interior design firm’s workflow. Any company in the designing and architect industry should look for an accounting tool that allows them to:
- Manage different pricing methods as per the job
- Helps in the deposit collection
- Organizes their payment schedule
- Order tracking for inventories
In addition, you can also look for features that help you streamline your business process and reduce the complexity in the accounts reconciliation for your interior design company.
2. Hire an Accountant
Even if you have a robust accounting system in place, you can't leverage it and make the most out of it if you don't understand the accounting principles. You will still make mistakes that lead you to go through the hassle of account reconciliation.
Therefore, you should hire an accountant who has a sound understanding of the new technologies. If it is a burden on your finances, you can choose to hire an accountant part-time. It will be adequate since they can help you with bookkeeping and spot any mistakes in the financial statements.
3. Learn About Bookkeeping
While accounting doesn’t fall within an interior designer’s domain, it is a vital part of their business. If they can grasp the fundamental things of bookkeeping, it can help them maintain clear records from the start.
Knowing bookkeeping basics can help you spot and fix issues by yourself. You can find duplicate transactions or missing figures and know about any errors in your financial statements on your own. Moreover, you can also understand the cash flows of your interior design company.
In a Nutshell
We hope you understand the discrepancies leading to account reconciliation and the measures you can take to streamline the process. Interior design companies need to focus on creativity and other innovation factors. It is the driving force that helps them to find and retain clients.
If they utilize their time in dealing with accounting issues, they won't be able to focus on the creative side of their business. As a result, it can hamper the progress of your interior design business. So, you can follow these simple steps in this article and simplify your accounting operations.
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