Reconciliation

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Overview

Reconciliation is the process of matching recorded Transactions in Asset with external financial data (e.g., bank statements) to ensure accuracy. This step is essential for detecting discrepancies and maintaining reliable financial records.

Asset simplifies reconciliation by maintaining a running balance of recorded Transactions and comparing it against the balance provided by the Transaction source e.g. Plaid.

• If the balances match, the Account is reconciled.
• If the balances do not match, the Business User or Bookkeeper must investigate the discrepancy.

The recommended approach is to review a Bank Statement, identify the missing or incorrect entry, and adjust the books accordingly. Any necessary corrections should be made through adjusting Journal Entries, ensuring that the recorded balance aligns with the actual financial data. Once balanced, the Account is considered reconciled.

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How to Create an Adjusting Journal Entry on Asset

Let’s say a Business Owner notices that a Bank Account is unreconciled due to an incorrect transaction amount. In this scenario, the Owner purchased a new lawn mower on June 25, 2024, but the Transaction was incorrectly recorded as 6,686 instead of the correct amount of 6,886.

To correct this, the Business Owner must create an adjusting Journal Entry to reflect the missing $200.

Your application can support this by following these steps:

1. Journal Entry Creation Interface – Provide a front-end form that allows users to input:
   • The correct transaction amount
   • The affected Ledgers for each line
   • A brief description for reference
2. Call Create a Journal Entry – When the user submits the correction, your application should call the Create a Journal Entry endpoint, including:
   • Date: The original transaction date (06/25/2024)
   • Description: A clear reason for the adjustment (e.g., “Adjusting Entry – Correcting Bank Transaction Error”)
   • Ledger details: The appropriate accounts, amounts, and debit/credit directions

Example Adjusting Journal Entry

Date: 06/25/2024

Description: Adjusting Entry - Correcting Bank Transaction Error

Accounting Breakdown

• Debit PPE (+$200): Increases the asset value to reflect the correct purchase amount.
• Credit Bank Account (-$200): Adjusts the cash balance to match the actual amount spent.