What Is Reconciliation in Accounting
A clean reconciliation cycle is what keeps your VAT filings, corporate tax returns, and FTA audit readiness penalty free. Here is exactly what it means and how it works in the UAE.
The process of comparing two sets of financial records to ensure they are the same refers to reconciliation in accounting. When the financial records do not match, the difference is discovered, investigated, and resolved.
All companies do it. VAT filing, corporate tax returns, and preparing for FTA audit are legal requirements in the UAE, and account reconciliation UAE is not an option; mistakes in your books mean mistakes in your penalties.
Why is Reconciliation in the UAE Important?
The Federal Tax Authority (FTA) expects your VAT returns to be exactly the same as your accounting records. Taxable profit reported to the FTA under UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) must be consistent with the accounting profit as shown on your financial statements.
Any mismatch, even due to a timing error, can lead to an FTA audit, a Voluntary Disclosure obligation, or a penalty of AED 1,000 to AED 2,000 per incorrect return filing.
Keeping your books audit-ready year-round is done through accurate reconciliation in accounting.
Reconciliation In Accounting Types
| Type | What It Compares | Frequency |
|---|---|---|
| Bank reconciliation | Cash book vs bank statement | Monthly |
| General ledger reconciliation | Sub-ledger vs general ledger | Monthly/quarterly |
| Accounts payable reconciliation | Supplier invoices vs ledger balances | Monthly |
| Accounts receivable reconciliation | Customer invoices vs ledger balances | Monthly |
| Intercompany reconciliation | Transactions between group entities | Quarterly |
| VAT return reconciliation | Accounting records vs FTA VAT return | Each tax period |
Step-by-Step Bank Reconciliation Process
The most frequently performed type is bank reconciliation. It compares the closing balance of your cash book with the bank statement for the same time frame.
Get the bank statement and cash book for the same period.
Match all entries (deposits, payments, bank charges, interest credits).
Unmatched items, unpresented cheques, uncleared deposits, bank fees not recorded.
Make adjustments to the cash book for bank charges and interest not yet recorded.
Complete the bank reconciliation statement to show that both balances are correct.
Common Differences: Cheques issued but not cleared, deposits in transit, bank interest not recorded, and data entry errors. These are not frauds, but they are all unbalanced without being resolved.
VAT Return Reconciliation in the UAE
VAT return reconciliation UAE involves comparing each taxable sale, purchase, input VAT, and output VAT itemized on your accounting system with the VAT return submitted to the FTA for the same period.
It needs to be done before each VAT return, quarterly for most businesses, and monthly for businesses with a high turnover. VAT returns are checked against invoices, bank statements, and financial statements during VAT audits by the FTA.
Businesses that skip account reconciliation UAE for VAT regularly face mismatches, overclaimed input VAT, and missed output VAT, each of which has fixed penalties.
Reconciliation and Corporate Tax Compliance
Federal Decree-Law No. 47 of 2022 requires UAE companies to submit corporate tax returns within 9 months of the end of the financial year. The reconciling item for the return is between accounting profit (as per IFRS financial statements) and taxable profit (after making adjustments for non-deductible expenses, exempt income, and tax reliefs).
General ledger reconciliation and trial balance reconciliation must be clean before this adjustment can be calculated accurately. If the general ledger doesn't reconcile to sub ledgers, then the profit numbers in the business are not reliable and unreliable profit numbers lead to inaccurate tax returns.
Common Reconciliation Mistakes That UAE Businesses Make
Every error is correctable, but it takes time, professional fees, and sometimes FTA Voluntary Disclosure filings to correct the error.
How Does Skyways CSP Assist With Reconciliation and Accounting Compliance?
Skyways Corporate Services Providers offers comprehensive bookkeeping UAE and account reconciliation UAE services for both mainland, freezone, and offshore companies. Our team is responsible for monthly bank reconciliation, general ledger reconciliation, accounts payable and receivable reconciliation, VAT return reconciliation UAE, and corporate tax filing preparation.
All reconciliations are done against IFRS and FTA compliance requirements, and your books are audit ready throughout the year, not just at the end of the year. Call Skyways CSP to establish a reconciliation plan to ensure your financial records are accurate and your tax filings penalty free.
Frequently Asked Questions
Reconciliation Done Right, All Year Round
Let's learn what is reconciliation in accounting in simpler terms. Basically, the process of verifying that the financial records of a business are correct is called reconciliation in accounting. In the UAE, this is a legal requirement for businesses to fulfil.
For FTA compliance, corporate tax filing, and external audit readiness, bank reconciliation, VAT return reconciliation UAE, and general ledger reconciliation are very important. Skyways CSP handles the entire reconciliation cycle, ensuring that your account reconciliation UAE is done correctly, on time, and audit ready, all year.
Need Audit Ready Books All Year Round?
Skyways CSP handles your entire reconciliation cycle bank, VAT, ledger, and corporate tax so your filings stay penalty free.
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