Bank reconciliation is the process of checking and comparing the financial transactions recorded by the company and the entries present in the bank statements.
The objective is to ensure that all transactions carried out by the company are correctly recorded and correspond to the actual movements in the bank accounts, identifying possible errors, fraud or omissions.
This particular manipulate is vital to hold the organization agency’s rate range prepared, updated and regular with monetary truth, heading off cash go with the go with the flow problems and facilitating financial management.
In a more simplified way, it acts as a mirror: the controls must be the same to guarantee financial security.
What is bank reconciliation for and what are its main advantages?
Its main advantages are:
- Quickly detect errors : Periodic reconciliations help identify inconsistencies between internal records and bank statements, avoiding future surprises.
- Fraud prevention : With regular reconciliation, fraud can be detected quickly, protecting the company from losses.
- More accurate financial planning : by reconciling banking information with internal control, managers have a clearer view of cash flow, enabling more efficient financial planning.
- Compliance with tax obligations : good reconciliation ensures that all documents and amounts are correctly recorded, facilitating compliance with tax obligations.
- Reduced delinquency : Frequent reconciliations help identify customer payments that may have gone unnoticed or duplicate charges.
What is the difference between bank reconciliation and cash flow?
Bank reconciliation and cash flow are distinct but complementary financial tools.
Cash flow is responsible for recording all inflows and outflows in a period , providing a clear view of how money moves within the business.
It allows managers display available balances, are expecting coins deficits or surpluses, and make strategic selections primarily based totally on financial forecasts.
Bank reconciliation is the process of comparing internal financial records with bank statements, analyzing whether all transactions in the company’s system correspond exactly to what was moved in the bank.
While cash flow focuses on planning and controlling future and present financial movements, bank reconciliation ensures that these records are correct and reflect the reality of the bank accounts.
Therefore, both processes are essential for efficient financial management, avoiding errors and helping the company keep its finances organized.
To simplify, see this summary:
| Bank reconciliation | Cash flow |
| Process of comparing the company’s internal records with bank statements to ensure there are no discrepancies. | Recording of all cash inflows and outflows, providing an overview of the company’s financial movements. |
| Focuses on checking and correcting errors, fraud and omissions. | Focuses on financial planning and forecasting resource availability. |
| Confirms the accuracy of recorded transactions. | Monitors available balance and assists in strategic decision-making. |
| It should be done periodically to ensure consistency between records and bank statements. | It must be constantly updated for a clear view of the company’s finances. |
How do you do an accounting reconciliation?
Carrying out an accounting reconciliation may seem complicated at first glance, but with a clear methodology, the process becomes simple.
Below, we will go through the essential step-by-step process for carrying out an efficient bank reconciliation:
- Gather bank statements : to begin reconciliation, you must have the company’s bank account(s) statements on hand for the period to be analyzed.
- Check the internal record of transactions : the company needs to maintain internal control, which can be through an ERP system or a simple spreadsheet. This record must contain all financial transactions carried out.
- Compare the entries : Now it’s time to cross-reference the information between the bank statement and the internal records. Check that all entries and exits are properly recorded and checked.
- Identify discrepancies : if you find any discrepancies, it is essential to investigate them. It could be a forgotten entry, a recording error or even an unidentified movement.
- Adjust and update records : After finding and correcting possible errors, adjust the internal control so that it reflects the reality of the bank statements.
- Keep documentation : keep all documents organized, as they may be needed for future reference or even audits.
How to make a bank reconciliation spreadsheet?
As we’ve visible, growing a bank reconciliation spreadsheet is an efficient and practical way to manipulate your business enterprise’s budget, especially if you do now not but use automated structures.
After all, the spreadsheet allows you to manually song financial institution transactions and examine them together with your internal statistics, ensuring that the whole lot is correctly recorded and with out discrepancies.
Below, we’ve got furnished a detailed step-by means of-step guide on a way to create a bank reconciliation spreadsheet. Check it out!
1. Basic spreadsheet structure
The first step is to define the structure of the spreadsheet. To organize the data clearly and efficiently, the spreadsheet should contain the following columns:
- Date : The date each transaction occurred (both on the bank statement and in the internal record).
- Transaction Description : Details of the transaction, such as the name of the supplier, customer, or reason for payment or receipt.
- Type : indicate whether it is an input (income) or output (expense).
- Amount : The amount of the transaction.
- Statement Balance : The bank balance after each transaction, as shown on your bank statement.
- Internally recorded value : the corresponding value recorded in the company’s accounting system or internal control.
- Reconciliation status : mark whether the transaction has been reconciled or is still pending verification (usually marked as “Reconciled” or “Pending”).
2. Gather bank statements
Download or request from the bank the bank statements for the period that will be reconciled using our spreadsheet.
If possible, obtain these statements in digital layout, consisting of CSV or PDF, if you want to make it simpler to go into the data into the spreadsheet.
3. Fill in the spreadsheet data
Start by filling out the spreadsheet with the transaction data from the bank statement received from the bank.
Each line of the spreadsheet must represent a transaction, with the date, description, type (input or output), value and statement balance after each operation.
4. Add internal records
Now, add the transaction data recorded in the company’s accounting system to the spreadsheet.
This includes all payments and receipts that have been made and recorded in the cash flow or accounting. Make sure that all relevant transactions are present.
5. Compare the values
With data from both sources (bank statement and internal records) present in the spreadsheet, it’s time to compare.
For each transaction on your bank statement, find the corresponding transaction in your internal records. If the amounts and descriptions match, mark the transaction as “Reconciled” in the status column .
6. Identify and resolve disagreements
During conciliation, it is common to find some disagreements, such as:
- Unrecorded transactions : movements that appear on the bank statement but have not been recorded internally.
- Divergent values : differences in values between what was recorded and what was debited or credited to the bank.
- Duplicate transactions : entries or exits that have been recorded more than once in internal control or at the bank.
At this point, each time you find one of these discrepancies, you should investigate it and correct the records. You may need to add a forgotten transaction, correct incorrect amounts, or adjust duplicate entries.