Bank reconciliation is one of the bases that are necessary in the financial aspect of the company. The reconciliation ensures that all records in the books of accounts tally well with bank transactions, hence giving an elaborately clear view of the financial status of the company.
Whichever size or kind of business it may be, bank reconciliation plays a vital role in making informed decisions concerning finance; it ensures no error or discrepancy occurs, hence poor decision-making.
Having said that, we will go through all the aspects of this related topic in an elaborative guide in order to be able to have more financial control by means of bank reconciliation. Continue reading below and enjoy your reading!
What is Bank Reconciliation?
Bank reconciliation is the justification of a company’s financial books against the bank statement. This ensures that correct records are made for every transaction, whether inflow or outflow of funds, to maintain orderly finances and identification of discrepancies.
It is, in other words, the process of reconciliation of whether the data from the company is matching, and whether the final balance after the allocation of entries on both sides is the same or not. In the case of a company, the bank reconciliation becomes quite vital to make sure that deposits actually correspond to receipts and that expenses have been correctly recorded.
Such a comparison is also possible through reference to data recorded in a financial management system for those companies using one, thus making the process way easier. It could also facilitate reports which may be used by the collection department to follow up with any customers who are defaulting.
It is worth emphasizing that bank reconciliation is essential to help maintain financial control up to date, quickly correcting any errors or delays in transactions.
What is bank reconciliation used for in practice?
Bank reconciliation is used to:
- ensure the consistency and accuracy of a company’s financial records;
- detect and correct errors in financial records;
- identify unauthorized transactions;
- avoid financial imbalances;
- provide clarity in the financial report of the company’s situation;
- assist in the early detection of discrepancies, such as bounced checks or posting errors;
- enable financial decision-making based on accurate information;
- enjoy all the advantages of effective financial control .
Now that you know the main functions of bank reconciliation, we will detail its main advantages in the following topic. Stay tuned!
What are the advantages of bank reconciliation?
Bank reconciliation brings important advantages from a financial point of view. Discover the main ones.
Better financial and cash flow predictability
By keeping your income and expenses regularized and reconciled, you will have a much more accurate cash flow forecast .
This helps in structuring realistic goals and enables a more solid future vision for your company, making it more prepared for market changes.
Confidence to carry out financial transactions
Bank reconciliation provides a reliable balance, which increases your security when carrying out operations such as hiring, loans and investments.
By making safer and more informed decisions, you optimize management and the chances of success in business.
Improved financial and strategic planning
With control over your company’s balances, it becomes easier to design new scenarios and optimize your planning.
In that regard, the individual would be able to have more accurate projections, more organized risk management, and action plans with tailored data and reports that cater to the demands of the business.
Bank reconciliation VS cash flow
The cash flow includes the financial inflows and outflows by recording against the company’s cash flow arising transactions. Bank reconciliation, in turn, is used to verify whether or not the transaction actually occurred within the current accounts of the company.
For example, if there was a sale recorded for an amount of R$1,000.00 on the 10th day of the past month, the bank reconciliation verifies that, effectively, the value entered around that date.
It enhances the analysis in practice by identifying the mistakes that may have happened during bank reconciliations and cash flow statements, and thus it corrects these. It checks for information that is detailed enough and frequent.
How to do bank reconciliation?
Now that you know what bank reconciliation is for, understand how to do it in 4 steps:
- Accountability;
- Balance check;
- Analysis of details;
- Correction and storage.
We will detail each one below.
1. Accountability
Establish a daily financial tracking routine. Document all transactions, including receipts, invoices, payment slips, and bank statements. This practice strengthens your control over daily operations.
2. Checking balances
Compare bank account balances with internal records of inflows and outflows and resolve any discrepancies in amounts. This is essential to maintain up-to-date cash flow and the company’s financial health.
3. Analysis of details
Examine the dates of bank transactions and verify that they correspond with internal records. Evaluate payment terms, bank fees and charges, and the service package. From this, identify opportunities to reduce costs.
4. Correction and storage
Proper bank reconciliation provides accurate financial control and allows you to identify errors and discrepancies in order to resolve them and develop new strategies. Therefore, archive all documents used in the reconciliation as evidence and to correct errors in posting, bank processing and software errors.
Why use a management system to do bank reconciliation?
Performing efficient bank reconciliation requires some crucial steps in financial management. For example, real-time updates of all cash inflows and outflows, comparison of bank statements with the company’s balance, monitoring deadlines for receipts and payments, and immediate correction of errors.
However, to optimize this process and get rid of unnecessary bureaucracy, it is advisable to leave aside financial spreadsheets and manual methods and opt for a financial management system capable of automating the bank reconciliation process and keeping your financial records up to date and organized.
With integrated management software, your financial data operates in real time, ensuring that reconciliation is conducted automatically based on transaction records. In addition, the risk of errors and errors in entries is minimized. It is a modern and efficient solution for keeping financial control always accurate and up to date.