What does it mean when you see or hear the term, "reconciling accounts receivable?"

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herappleness's profile pic

M.P. Ossa | College Teacher | (Level 1) Distinguished Educator

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Accounts receivable are the books where you list what your customer owes you for the services or the goods that your business offers and sells. An accounts receivable can last up to three months depending on the relationship that you have with your client. In all, keeping track of accounts receivable is imperative to keep your business running.

When you hear the term "reconciling accounts receivable", what you are figuratively hearing are the words: "reviewing what has been paid and what has not yet been paid". Therefore, a night auditor or a day auditor will review the business accounts and check for what has been paid, what has not been paid, and who owes what (and for what reason). This is how you know whether a customer or client is defaulting on their account.

ramakrishnan's profile pic

ramakrishnan | Middle School Teacher | (Level 1) Adjunct Educator

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'Reconciling Accounts Receivables' refers to matching the amount of debtors (Receivables) as shown by the entity and the credit balance of the reflected by the corresponding debtor in his own books. Suppose Mr. Brown is reconciling his account receivable from say Mr.White. As per Mr. Browns books It is USD 5000 but Mr.White might have confirmed that his books show that he owes Mr.Brown only USD 3750. Accounting for this difference by Mr.Brown in his books having regard to the reasons that may result in difference is known as Reconciling his account receivables.

The reasons for the discrepancies between the balance could be

1. Checks sent but not received by the other.

2. Claims ( DR notes or Credit notes) accounted by only one of the parties to the transaction.

3. Errors casting of personal ledgers of debtors.

4. Errors in capturing the source data and so on and so forth...

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