"Irreconcilable Differences" Do Not Apply to Cash Flow Management - Funding Gates Blog
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“Irreconcilable Differences” Do Not Apply to Cash Flow Management

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Most accountants are all too familiar with the “end of month crunch”: those dreaded few days when time has a disobliging habit of speeding up as the to-do list grows exponentially. Even the most seasoned of CPAs have a tendency to put off a few components of the accounting process, only to pay for it at the end of the month. But outside of dealing with a few stressful days, the failure to reconcile accounts on a daily basis can be detrimental to accounts receivable and cash flow management and put you at risk of getting audited.

Improving Cash Flow Management and Reducing Risk of Audit

There are some obvious reasons why it’s crucial to reconcile accounts every day. For one, as time goes by, we humans tend to forget things, and dealing with potential discrepancies on a routine basis will help keep order when issues are fresh in your memory. But perhaps more importantly, matching accounts payable to the money taken out of your accounts keeps you informed of your company or client’s cash flow. This helps to eliminate hiccups, reduces the risk of overdrawing on the business account, and ultimately puts the company in a better position to grow.

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Daily reconciling is also a #1 accounting “best practice” when it comes to avoiding an audit. PCAOB Auditing Standard no. 2, An Audit Of Internal Control Over Financial Reporting in Conjunction With An Audit of Financial Statements, states that when the auditor identifies a material misstatement in the current-period financial statements that was not initially identified by the company’s internal control over financial reporting, it is a strong indicator of “material weakness”—even if management subsequently corrects the misstatement. The company must identify these errors itself, or, if the auditor finds them first, the company must be able to prove it would have found them. Proving that an error “would have been found,” is exceedingly difficult if the accountant lacks a software solution; Scrambling through individual invoices and receipts is not only stressful and inefficient, but usually proves futile in the long run.

Accounts Receivable Checklist

When it comes to accounts receivable and cash flow management, the following items should always be part of your regular “reconciliation” checklist:

  • Ensure A/R aging total agrees with the balance reflected on the trial balance
  • Identify every account balance past due and determine plan of action for follow-up
  • Determine whether any past due balances need to be written off
  • Review accounts receivable aging for any unapplied credits
  • Review credit memos issued during the month, determine proper authorization

The problem is that without an accounts receivable platform, accountants don’t have the option of reviewing number of overdue invoices, total overdue sales, and billing payments at the click of a mouse. This makes the reconciliation process time-consuming, and thus makes it all the less likely that the CPA will commit to the daily practice of reconciling accounts. (Cue the end of month crunch). But with the right accounts receivable and cash flow management solution, CPAs can stay on top of cash flow throughout the month, ultimately ensuring the financial health and security of their business.

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