What is the bank reconciliation statement?
Bank reconciliation is a process for verifying whether bank account balances recorded in a company’s accounting records match the balances shown on bank statements. This ensures that there are no errors or discrepancies between the two records.
Bank reconciliation is a major element in the financial management of a company because it makes it possible to detect possible errors or fraud. It is generally carried out very regularly, from each month to each quarter.
Perform a bank reconciliation report
The bank reconciliation statement is carried out by comparing the transactions recorded in the accounting books, such as bank statements, account statements, credit card statements and uncashed checks… It is essential to ensure that all documents are up to date and cover the desired period.
Preparation
You must first gather the necessary documents (bank statements, account statements, credit card statements, uncashed checks, etc.) and ensure their compliance (up-to-date documents, period covered, etc.).
Transaction verification
Once the documents are prepared, they are checked. To do this, the transactions recorded in the accounting books are compared with those appearing on the bank statements. All transactions present in the accounting books must appear on the bank statements.
Error identification
If discrepancies are noted, you should inquire about the cause of the errors. It is possible that certain entry entries are incorrect, that checks are not cashed or that certain withdrawals are not recorded.
Error correction
Once errors are identified, correction procedures are required. Please note that it is strongly recommended to keep a record of the corrections made in case of subsequent verification.
Final balance
The last step concerns the calculation of the final balance of the bank account. This calculation is carried out by comparing the balance recorded in the accounting books with that indicated on the bank statement. If the two balances match, then the bank reconciliation is successful.
The tools used to produce the bank reconciliation statement
Spreadsheets
Spreadsheets, such as Microsoft Excel, can be used to organize banking data and perform calculations manually. However, this is a tedious method, susceptible to human error.
Accounting software
Accounting software, such as QuickBooks or Sage, has the ability to automate the bank reconciliation process. They provide capabilities for entering bank transactions, classifying and grouping transactions into appropriate categories. And above all, they generate bank reconciliation reports automatically.
Bank connectors
Bank connectors are used by some companies to automatically generate bank reconciliation reports. Bank connectors offer the ability to synchronize banking data in real time with their accounting system.
Business Intelligence (BI) tools
Business Intelligence (BI) tools such as Tableau and Power BI aggregate data from diverse sources to create dashboards and visualizations to help users understand data and identify potential anomalies.
What are the risks of poor bank reconciliation?
Calculation errors
When bank account balances do not match company accounting records, there is a risk of calculation errors in financial statements and tax returns.
Delays in payment
If reconciliation errors are not detected, payment delays to suppliers and employees may occur.
Fraud
A poor bank reconciliation could inadvertently mask certain fraudulent activities such as embezzlement or fictitious transactions.
Inappropriate management of finances
If the financial statements are incorrect, the company’s managers will encounter difficulties in making decisions in financial management.
Additional costs
If reconciliation errors are common, it will be necessary to invest in additional resources to correct them. Otherwise, the situation will become more and more worrying.