The bank reconciliation is an essential tool of a company’s administrative system, used in internal control of financial resources, which ensures that the balance ledgers and bank balances are correct.

In this sense, it serves to notice possible capital deviations in the inflows and outflows of the company.


What is Bank Reconciliation?

It is an administrative activity that consists of comparing the items recorded in the bank statement, with the records recorded in the company’s accounting books.

Its objective is to ensure that all banking operations are correctly accounted for and reflected in the company’s books and, therefore, in the financial statements.

Also, thanks to the fact that it allows us to accurately determine the correspondence of your account balance with that of the bank, it facilitates the detection of errors promptly to carry out the necessary procedures and correct it.


How the Bank Reconciliation is done

Reconciliation is itself the comparison task, but to reach it, it is necessary that the previous process has been completed, this process is as follows:

The company must record all capital movements in an auxiliary book.
In turn, the bank records the accounts’ movements and monthly sends each customer their account statement, with the details of the entries made.

Subsequently, the review and verification are carried out, in which it must be verified that the movements registered by the company coincide with those of the bank and, if not, search for the fault and determine the cause of the said difference.


Bank reconciliation process

That said, let’s start with the reconciliation:

  • The initial amount is compared to the final amount in the bank report and books.
  • The different banking operations are located using the bank date, and you use the transaction number as a reference.
  • A manual or Excel table can be prepared, filling it with: date, transaction number, and amounts of both bank amounts and book balances.
  • Amount comparison begins, plus reference number to differentiate movements with repeated amounts.
  • The amounts that exist in the bank and book are crossed out or marked, leaving only the “unconsolidated” records.
  • These are brought to a reconciliation sheet.

These non-reconciled ones can be errors of the bank or the registry in the book, what is due is to establish the truth and the erroneous one, and according to their nature, it is subtracted or added in the reconciliation sheet with the note “error in bank or error in the book “according to the case.


Bank Reconciliation Results

Sometimes the final balance of the bank does not coincide with the balance in the books, this is due to the registration time of the items, for example, it may happen that the company registers an economic fact in its books, but that the bank that stops the bank the registration time is a few days later. I do not fall for the day of conciliation.

Differences may be due to:

  • Deposits in transit are those deposits recorded in books, which are not paid in the bank report.
  • Bank charges or commissions not accounted for.
  • Movements recorded in the bank that have not been accounted for and recorded in the books.
  • Checks issued that have not been cashed.
  • Other movements, according to the bank report that has not been accounted for.

Importance of Bank Reconciliation

Bank Reconciliation is not a compulsory activity, but it must be considered a fundamental process that must be done periodically. It facilitates keeping the company’s accounting up to date, with accurate and relevant information useful in management and decision-making of economic resources.

Being useful for:

  • Certify that the deposits are correctly reflected in the bank balance and that they have not been diverted or mistakenly paid to another account.
  • Detect possible deposits posted that did not enter the account at the bank for any reason.
  • Identify deposits to unaccounted for.
  • Identify checks written and not cashed.
  • Detect checks drawn and cashed that have not been accounted for.
  • Confirm the posting of all bank charges
  • Detect possible errors in amounts, either in the accounting books or in the bank account report.

To end, it is worth mentioning that there are two types of reconciliation: arithmetic or individual conciliation and joint conciliation.

The first is to connect the balances, that is, based on the balances recorded in the accounting books, use the differences between the different accounts to equalize the balance indicated in the bank’s report. And the joint conciliation is one that concerns the person in charge of corrections.

Share.

Leave A Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.