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Account Reconciliations - A Balancing Act [RWH] [FIN]

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Account Reconciliations: A Balancing Act Using the Laws of Physics to Fix the Crippling Effects of Account Reconciliations on the Month-end Close Process According to Newton's third law, "for every action, there is an equal and opposite reaction." This now famous law of physics helps us understand how the universe around us works…and Accounting is no exception. Accounting, in its purest form, is a system of checks and balances. For every action there must be an equal and opposite reaction (the balance of the universe). Trial balances must be in sync; total debits must equal total credits. Every number in the accounting process must be supported in one way, shape or form. Without this simple balancing of numbers, chaos would ensure in the accounting universe. The very principles of accounting demand that everything be balanced, tied out, reconciled and, above all, supported by fact. The Franciscan Origins of Accounting Double-entry accounting dates back to the 15 th century. While he might not have invented it, a Franciscan friar named Luca Pacioli was the first to document the process in a mathematics textbook. If you are an accountant, it's possible you may have heard of Pacioli's story. In fact, he is sometimes referred to as the father of modern accounting. In his texts, Pacioli described the trial balance as the final step in the accounting cycle. Debit amounts are listed on the left side of the ledger and credits on the right. If the totals of each column are equal, the ledger is considered balanced. If not, according to Pacioli, "that would indicate a mistake in your Ledger, a mistake you will have to look for diligently with the industry and intelligence" you have received. In today's context, there is absolutely nothing different about Pacioli's statement than when it was made over five hundred years ago. Every journal entry that is posted into a ledger must consist of a balanced set of amounts, where at least two entries (a debit and a credit) must be recorded and must be balanced. And while accounting has grown more sophisticated—with established accounting principles, automated accounting systems and advanced database technology—at the end of the day, any differences or out-of- balance situations are considered errors that you must "look for diligently". Fast Forward to Balance and Complexity Fast forward to today and consider the level of checks and balances built into current technology. From small, off-the-shelf accounting packages to advanced ERP systems, each system has a set of built-in controls that assures that the general ledger of each entity is balanced. Seldom do we find this to be an issue in this day and age simply because such systems will not even allow you to book an entry or record a transaction that is out of balance. "Physics depends on a universe infinitely centered on an equals sign." –Mark Z. Danielewski "It is clear to all that the animal organism is a highly complex system…the equilibrium of this system, as of any other system, is a condition for its existence." – Ivan Pavlov

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