Bank reconciliation explained step by step

Bank reconciliation explained step by step

1 - Financial control in the company

Bank reconciliation is one of the most important financial control processes.

But what is financial control? Stephen Robbins, author of the best-selling Organizational Behavior, defines it as 'a process by which the various business activities are controlled to ensure that they conform to the way they were planned'.

Bank reconciliation explained step by step

In other words, the financial control verifies that the economic resources of a company are correctly used to achieve the corporate objectives.

Thanks to financial control it is possible to detect and correct possible deviations of finances, collaborating with the areas in which these alterations occurred to solve the problem. Given its importance, it is

  1. essential that financial control is carried out
  2. Flawlessly, starting from clear and orderly data.

2 - What is bank reconciliation?

There are two types of reconciliation: bank reconciliation and tax reconciliation. In this article we will focus on the banking one, which consists in comparing the company's accounting books with the movements recorded in the bank statements , to make the necessary corrections or adjustments where discrepancies occur (which can happen quite commonly) . The ultimate goal is that the figures contained in a company's accounting books coincide perfectly with those indicated in the bank statement.

Bank reconciliation is not a mandatory process, but it is highly advisable for any type of company: having reliable and correct data available is the first step in implementing a savings and process optimization policy.

How often should it be done? The best option would be once a month, but doing it every six months is also a good solution. In some cases, even once a year may be sufficient.

Instead, there are few doubts about who the professional figure in charge of its realization is. Bank reconciliation must be done by the person who takes care of the company's accounting: knowing the subject very well, he will be able to identify errors and anomalies more easily.

3 - Benefits of bank reconciliation Benefits of bank reconciliation

The bank reconciliation is an essential process

For the company. The advantages it can bring are many: allow you to have better control over economic resources, manage accounting more effectively, have updated data in the event of an inspection and have available information qualities capable of promoting decision-making.

To get these benefits, how often should bank reconciliation be done?

It really depends on the characteristics of the company. The best option would be once a month, but

Doing it every six months is also a good solution. In some cases, even once a year may be sufficient.

4 - [Model] Procedure and practical example

  1.  But how is bank reconciliation practically accomplished?
  2. The first document we need is the bank statement of the period we want to reconcile. It is usually done every month but, if necessary, it can be done less frequently.
  3.  Before starting the reconciliation the accounts must be updated, to avoid having to do the same operation several times. For this reason it is important to examine the company's accounting register.
  4. Most companies have several bank accounts, so we need to check that we are reconciling information of the same type and the same account.
  5.  The last document that we will need is the bank reconciliation of the previous month to check the final balance, and if any discrepancies are identified, it is possible to check whether these occurred in the month we are reconciling or if they occurred in the months previous.
  6.  After collecting this information, we will proceed with the compilation of the conciliation document (here you can find a practical example ).

5 - Best practices

  1. Listed below are some tips for faster and more effective bank reconciliation .Best practices with bank reconciliation
  2. It is necessary to have all the necessary documentation. If some important documents are missing, for example the travel expenses receipts; you must ask them to the area of competence and proceed to register.
  3. It is always advisable to cross check between cash flow, cash register and cash account , to find any errors more easily .
  4. It is advisable to start bank reconciliation by checking the final balance of the previous month and,
  5. If necessary, of the previous months as well. This way, if you find an error, you won't need to review it point by point, but we'll check by sections to find out in which month the
  6. Mismatch occurs.

6 - [Info graphic] How to solve the most frequent problems of a bank reconciliation

You are performing bank reconciliation of the expenses of the month, when you find a difference between the balance of the account book and that of the bank statement. And now, what should be done?

7 - The review of bank reconciliation

Also in the case of bank reconciliation, as with any other business process, it is necessary to make a review. The review of bank reconciliation

In order to review the bank reconciliation, a copy of the bank reconciliation of the

Month we want to check, a copy of the corresponding accounting activity and a copy of the bank statement of the month in question are required.

The review of the bank reconciliation consists in carrying out cross-analysis of the three documents to

Avoid any discrepancies. It is an operation that can be done by hand, but using specific software it is possible to automate the process and make it more precise and simple.

8 - Automated bank reconciliation

Many times, bank reconciliation is considered an administrative task of little value for the company, when in reality it is a management and control tool of enormous importance.

For this reason it can be very useful to automate this activity. The advantages of automated bank reconciliation are many. First of all, less time and fewer resources to devote to the implementation of the process and, consequently, increased efficiency and final savings of the company.

Being a much more agile process it can be done more frequently: finding the errors and identifying their cause and their solution will be very simple.

Moreover, as with any other business process, if done by hand and on the basis of the paper it is easier for there to be errors or inaccuracies: with an automated process,

Human error is totally abolished.

Last updated:1/3/2020 11:10:16 PM
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Corpseed Services

Corpseed ITES Pvt. Ltd. is a technology platform, make things easier for Entrepreneurs and businesses. Just like a seed is required to grow a tree similarly, there are few prerequisites like “Business Planning, finalizing the legal structure of the business, Govt Licenses/Permits, Legal compliances, financial structure & Integration of right technology to operate the business”.


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