Bank Reconciliation Statement

A bank reconciliation statement is a synopsis of banking activities that matches a business entity’s ledger transactional records. A bank reconciliation statement is an effective internal control system suitable to reduce misrepresentation/fraud between invoices and actual payment.

Bank reconciliation statements guarantee preparation and financial collections are deposited into the bank. It recognizes differences between the bank balance and client receivables, to highlight the gaps to be rectified later. An accountant typically forms reconciliation statements once every month. Depending on the scale and

Significance of a Bank Reconciliation Statement

The purpose of a bank reconciliation statement is to reveal and address any mistake in recording and delays of payments in the said business period.  It will explain issues for investigation in the process of either collection or recording of the transaction.

  • Accountants use bank statements to confirm why the client did not receive business checks.
  • A large number of un-liquidated checks can show that an entrepreneur is unorganized in keeping up his organization’s accounting data. It can confirm that the invoicing and recovery team is not working up to the mark.
  • It helps you a trend of frauds and catches it on time. Look at various aspects of accounting and payment such as –
    • Unauthorized access to checks and incorrect issuance
    • Missing deposits in company account
    • Catching errors of internal accountants or sometimes even of the bank
  • A robust reconciliation process gives you an idea of the direction you are heading towards and how far are you from your monthly revenue goals.
  • You can plan other revenues and activities based on these crucial outputs from the bank reconciliation process and tweak for monthly sales strategy or steer the direction of sales.
  • Knowing your pure cash position and how much is receivables – Having majority payments in the form of receivables and debtors is not a good trend, and this is seen on time.
  • Cash balance is an important aspect to maintain liquidity. Especially as the company grows, the level of liquidity is essential as it tracked by external stakeholders.

Bank Reconciliation Statement

Bank Reconciliation Statement Process

  • The process requires looking at each transaction internally as recorded and compare with the amount credited. If an amount is not credited, then an entry for Receivables or Creditors needs to be made.
  • Depending on the number of transactions and the complexity along with the time required for closing the books, the process can be a daily, weekly, or monthly – at any interval.
  • The simplest way is to manually keep a transaction book and keep noting the corresponding transaction. However, even if the use of an electronic application is on, an accountant needs to keep an eye on the red flags and what is unresolved.
  • The unresolved transactions need to be tracked down and corrected with an explanation for the errors.
  • You have to account for time differences between the clearing of payments via checks – such as “outstanding checks” and clearance of electronic payments.
  • All outstanding issues at the end of the month are critical to tie back to some transaction or the other in the previous months.

Bank Reconciliation Tools

Bank Reconciliation Tools incorporates automated tools now, such as Account Reconciler or Auto Reconciler. They significantly improve the reconciliation procedure by enabling clients to adjust General Ledger records and checkbooks effectively inside Microsoft Dynamics GP. The scale of the entity and the number of transactions in a day determines the implementation of these tools. It is essential to be aware of them when you are looking for a pure accountant role.

  • Record Reconciler

Record Reconciler enables clients to accommodate their bank proclamations, including multicurrency exchanges. It utilizes the transactions that are visible on the checkbook’s general record account.

  • Auto Reconciler

It allows exchanges from an external document source to consequently match bank exchanges with Microsoft Dynamics GP checkbook exchanges. Perfect with both Encore’s Account Reconciler and Dynamics GP Bank Reconciliation, Auto Reconciler mainly adjusts organizations with an enormous volume of bank exchanges.

Issues and Challenges

Bank reconciliation is an intrinsic part of the accounting process.

  • Technology Investments– While bank reconciliation is essential to guarantee control and sound accounting procedures, it is a repetitive and rote process that can be easily automated if the given the entire setup of accounting is such. It runs on a day-to-day schedule for many organizations and done almost error-free. This requires substantial technology investment to get the necessary accounting systems integrated.
  • Multiple accounts – Bank reconciliation statement at its base is a simple process. It becomes complex once there are numerous accounts in operation in various geographical locations. If it’s a multinational company with overseas clients, with payments in multiple currencies, the level of complexity brings in more variables to account for.
  • High volumes– if your company deals in numerous small transactions or has an increasing revenue base with increase sales, the high volumes will require quick reconciliation and recording and matching. This becomes impossible with manual and straightforward software
  • Formats of External messages– When reconciling with different banking messages, the formats might differ as different geographies, and banking systems might use a different method of communication. There are various formats such as BAI, ACH, FIRDS, or as most commonly used MT and MX messages of SWIFT.

Conclusion

Accounting timetables are a typical way for companies to manage budgetary calendars. These calendars pair with the organization’s bank reconciliation process.

Liquidity rules in business. Bank reconciliation is one of the foundation stones to a successful and useful business model. It is essential to know what to check for when you reconcile. This is precisely like balancing your checkbook and budget at home but on a much larger scale. A well-reconciled income statement helps in fewer audit issues, more time spent in planning execution of business plan and expansion. A small entrepreneur will also do well to do this periodically to bring discipline and stability to his business operations, just like a large firm.

Weighing the pros and cons of this process, one should be aware of how to protect against common issues. Some issues might seem like cases of fraud but are usually just timing delays.

Last updated on : August 9th, 2019
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