A bank statement tracks all the cash flows in the company’s account. In contrast, a general ledger tracks all cash transactions. These two statements should convey the same information and produce identical cash balances.
Bank reconciliation matches the balances in accounting records to the information on a bank statement.
Finance and accounting departments go through the following steps to perform bank reconciliation:
Deposits in transit are funds received and recorded by the business but not yet recorded by the bank. Include them in the bank statement.
6. Compare the cash balances
After matching the records and making the necessary changes, confirm that the end balances are the same. Complete the reconciliation process. If they’re still unequal, go through the overall process again to locate the problem.
On March 2, XYZ Co. opened a bank account with a $10,000 deposit. In the same month, the company wrote four $5,000 checks and deposited $2,000 at the end of the day on March 31. As a result, the company’s books, or cash account, reflect a $7000 debit balance as of March 31. The bank statement for March 31 shows a balance of $5,975.
Different balances appear in the records and on the bank statement, treasury must reconcile them. They must compare the details of each document to accomplish this. Assume the following:
The treasury team must fill in the missing transactions to reconcile the accounts so that the balances are equal. Follow these steps to achieve this:
The bank statement and the company’s records now both show a $6,975 balance. Therefore, the bank statement has been reconciled.
Analysts manually retrieve bank statements from banking systems. Then, they access the ERP system to analyze and compare the information to the cash balance. This can be time-intensive due to the high level of manual intervention required.
There is a risk of human errors with manual reconciling. This accomplishes nothing in enhancing transaction accuracy.
After completing the reconciliation, it’s important to maintain the bank reconciliation statement for auditing purposes. If treasury analysts perform bank reconciliation on paper, keeping track of the audit chain can become difficult.
Transaction errors lead to a difference between accounting records and bank statements. Bank reconciliation helps businesses identify those transaction errors.
Companies should do bank reconciliations regularly to detect discrepancies that create problems like:
The goal is to ensure that each transaction on the bank statement is the same as the company’s internal records. The following are the purposes of bank reconciliations:
The following are the ways cash management software helps perform accurate bank reconciliation:
Schedule a demo to learn more about improving bank reconciliations with cash management software.
The HighRadius™ Treasury Management Applications consist of AI-powered Cash Forecasting Cloud and Cash Management Cloud designed to support treasury teams from companies of all sizes and industries. Delivered as SaaS, our solutions seamlessly integrate with multiple systems including ERPs, TMS, accounting systems, and banks using sFTP or API. They help treasuries around the world achieve end-to-end automation in their forecasting and cash management processes to deliver accurate and insightful results with lesser manual effort.