How do you reconcile and adjust variances between different accounting systems or reports?

1 Why reconcile variances?

Reconciling variances means comparing and explaining the differences between two or more sets of financial data, such as income statements, balance sheets, or cash flow statements. It is essential to reconcile variances for several reasons. First, it ensures the accuracy and reliability of the accounting information, and prevents errors or fraud. Second, it allows for consistent and meaningful analysis and reporting of the financial performance and position of the business. Third, it helps identify and resolve any issues or problems that may affect the operations or profitability of the business.

2 How to reconcile variances?

Reconciling variances requires an understanding of the type and source of the variance, as well as the accounting system or report being used. Generally, the process involves identifying the variances and their causes, such as changes in prices, volumes, costs, revenues, exchange rates, or accounting policies. Then you should quantify the variances and their impacts, such as how they affect gross margin, net income, cash flow, or equity. You must adjust the variances and their effects by making a journal entry, reclassification, restatement, or disclosure in the financial statements. Lastly, document and communicate the variances and their resolutions to explain them in a note, report, memo, or meeting.

5 How to avoid or minimize variances?

In order to avoid or minimize variances, it is essential to plan and budget carefully and realistically, as well as monitor and control the actual performance and results of the business. To do so, reliable and relevant data and assumptions should be used for planning and budgeting. This includes historical data, industry benchmarks, market trends, or expert opinions to estimate prices, volumes, costs, revenues, or other financial variables. Additionally, plans and budgets should be flexible and adaptable to accommodate changes and uncertainties. For instance, scenarios, ranges, or contingencies should be used to account for any possible variations or risks that may affect the actual performance or results of the business. Furthermore, regular and frequent reviews and updates of the plans and budgets are necessary. This can be done on a monthly, quarterly, or annual basis in order to compare the actual performance or results with the planned or budgeted performance or results, as well as make any necessary adjustments or corrections.

6 Here’s what else to consider

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