The Importance of Reconciling Your Accounts Receivable

As a client of Fluence, you are likely aware that we tie down your accounts receivable (AR).  What does this mean and why do we do it?

During the reconciling or “tying down” of the accounts receivable, the goal is to verify that the money received (deposited at the bank) matches the money received according to the AR system.  For example, if the practice receives $1,000 on Monday, the AR system should show payments received of $1,000 and the bank statement should also show a deposit of $1,000.

This process is vital in the event of a government audit.  One of the first things the auditor will ask for is a reconciliation of the income.  It is very important to have a schedule showing the deposits to the bank for the year and how they match with what the AR system showed for payments received.  The auditor would ask for this reconciliation because he or she would presume that the owner could be stealing from the company.  If an owner is taking money and keeping the cash personally or depositing it in a personal account, this could lower reported business income and result in less tax paid.  We need to make sure these two systems match so that we can prove to the auditor that the owner is not hiding income.

Another important reason for this process is to try to detect theft or embezzlement.  If a dishonest employee wanted to steal from the business, one thing he or she might attempt to do is to record the money received in the AR system, but then take it before it gets deposited in the business bank account.  In order to do this successfully, he or she would have to show that the money was received in the AR system; otherwise, the patient would continue to get bills for an amount that was already paid and would probably call to correct the error.

As a regular service for our clients, Fluence reconciles the AR system with the bank.  If there is a difference between the two, further investigation is needed to determine if the difference is due to timing or some other factor.  As employees of Fluence prepare the accounting quarterly, they maintain this reconciliation of AR to bank; it becomes part of our work papers.  This helps us consult with you regarding theft and embezzlement, as well as maintain a schedule that would be needed in the event of an audit.

New to the Fluence website? Get in touch with us to learn more about our accounting services: 503-245-0766.

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