What is Bank Reconciliation & Why Is It Important

What is bank reconciliation?

Bank reconciliation is the process of matching entries (e.g., customer payments, bank fees, etc.) on the company’s cash books with the corresponding data on its bank statements.

A lot of time and resources go into account reconciliation, making it an exhaustive and error-prone process. Hence, businesses must look to improve their bank reconciliation process to make it faster and more accurate.

What is the purpose of bank reconciliation?

Bank reconciliation plays an important role in getting detailed visibility into cash availability, accurate reporting, fraud detection, faster financial close, and seamless audits. Regular bank reconciliations can help businesses identify any conflicting items on bank statements and take necessary action immediately. It is imperative that businesses remain prepared for regular bank reconciliations and adopt best practices in bank reconciliation to handle an increasing volume of bank statements amid business growth. 

To start with, businesses can adopt bank reconciliation templates to match bank statements with the cash book. Spreadsheet-based bank reconciliation template is free and easy to use. However, they have limitations when it comes to allowing collaboration and ensuring the speed and accuracy of processing.

Manual bank reconciliation vs Automated bank reconciliation

Manual bank account reconciliation means accountants rely heavily on spreadsheets and other manual methods for financial reporting. Automated bank reconciliation optimizes the process by identifying and resolving anomalies using advanced technologies, such as AI,  for faster and more accurate bank account reconciliation and financial close. 

Drawbacks of manual bank reconciliation

• Error-prone and time-consuming: Each transaction and its amount have to be matched, and unreconciled items should be identified manually or using spreadsheets, which makes the process extremely time-consuming and error-prone. In many cases, accountants end up with bank reconciliation statements saying cash book balance more than bank account balance or vice versa. 
• Inaccurate account risk assessment: Risk assessment of accounts using spreadsheets and other manual methods of reconciliations leads to inaccurate account prioritization. 
• No visibility and control: Usage of  spreadsheets limits visibility and control throughout the entire bank account reconciliation process.
• No standardized data documentation: A siloed approach involving spreadsheets leads several accountants to follow their own specific data documentation layouts, formats, and calculations, which further impedes the financial close. 

Benefits of automated bank reconciliation

• Fast and accurate: AI-based anomaly detection enables faster financial close and accurate reconciliation of bank statements and general ledger (GL) and GL and sub-ledger, saving accountants from manual work and making the process faster and more accurate.
• Proactive risk assessment: AI-powered reconciliation allows accountants to prioritize reconciliations by risk, value thresholds, and other key parameters and auto-assign reconciliations to users/user groups.
• Improved visibility and control: Real-time dashboard offers visibility to all stakeholders on the status of reconciliation, dependencies, and any required action.
• Standardized data documentation: Automation software for account reconciliation allows users to leverage pre-configured reconciliation templates (or create their own templates) to accelerate the reconciliation process. Transactional data analysis, computations, and document creation can be done in the same template. 

HighRadius Autonomous Accounting Solution

HighRadius Autonomous Accounting Software enables faster financial close and accurate reconciliation of bank statements and general ledger (GL) and sub-ledger. Using AI-based anomaly detection, save your teams from manual work during month-end close.