BANK RECONCILIATION

BANK RECONCILIATION

BANK RECONCILIATION

Accounting software is an application software that records and processes Accounting transactions such as accounts payable, accounts receivable, general ledger, payroll and trial balance etc. The need for accounting software depends on how big the business is. If the business is small, basic accounting software would be sufficient but as the business expands, you need accounting software with better features. Computerized accounting software can simplify many tasks and offers many advantages over manual accounts. One of the main things to look for as fraud is when the cheques you issued are being duplicated or money is leaving from your account without any notice, cheques/transfers  are  issued or made without authorization.

The benefits of accounting software are;

  1. inputting data is fast, straightforward and only needs to be carried out once
  2. It speeds up process and reduces delays
  3. Automates reports and analysis
  4. Automates tasks such as calculating pay, producing payslips and automatically makes calculations
  5. It reduces errors and avoids mistakes that can be committed when data is entered manually.
  6. It supports online banking and e-filing.
  7. IT helps in saving time and money and provides on the financial position on the business

BANK RECONCILIATION

Bank reconciliation is the process of ensuring that the balance in the bank account matches the balance from your bank. IF there is any difference the cause needs to be identified and the required adjustments need to be done in the respective books. The statement shows the deposits, withdrawals and other activities that impact a bank account during a specific period. Bank reconciliation is an effective internal financial control that helps in evading frauds.

Information required

For doing bank reconciliation, you need both the current and the previous month’s statements, including the closing balance of the account. All deposits and withdrawals that have been posted to the account must be on hand to prepare the reconciliation statement.

How it works

A bank statement features all the payments received from customers. Each payment will have an invoice corresponding to it. The invoice that has been sent by your company and the record of which is maintained in your accounts. These two amounts will be matched in the bank reconciliation process. Similarly in the case of a supplier, an amount owed to the supplier should be maintained in the expenses as the amount is taken away from your bank account.

If the transaction is present in the accounting records but is not there in the bank statement, then it is treated as an outstanding. The outstanding items are the differences that are present in between the two statements.

Process

The Auto Bank Reconciliation option enables you to upload an electronic version of a bank statement (provided by the bank) and ‘automatically’ reconcile it to your system bank using ‘matching’ rules applied by the system.

Where the system cannot ‘match’ transactions, it will suggest several possible matches or allow you to create and post a matching transaction.

This is a great way of reducing the manual effort in reconciling your system bank accounts with your bank statements and improving accuracy.

You can quickly identify unreconciled items and complete reconciliations when you need to – daily, weekly or monthly.

Bank Reconciliation using Reach Software

Bank reconciliation is very simple process when done using Reach Software. The steps involved are

  1. Log into the website
  2. Click the Reports tab in the right top corner of the web page
  3. Click Bank Reconciliation Report. It displays the list of bank accounts synchronized with our software.
  4. Now select the respective bank account. It displays the earlier transaction details.
  5. Click Reconcile and import the bank statement in specified format
  6. Enter the Headings which needs to synchronize with the Bank Statement
  7. The Software Itself Matches the Payment along with the Cheque or Reference number
  8. If the transaction details dont match with the payment then you have to manually match the Payment by clicking the Match option available in the Action Menu.
  9. The Software Itself Tally up the Monthly Income and Expenses

Prerequisites for Automated Bank Reconciliation

  • You must have a Bank which provides online banking
  • You must have access to the Bank Reconciliation module in your accounting software

Major Reasons for Difference in Bank Reconciliation 

The following are the reasons for the difference in the bank reconciliation;

  1. Outstanding Cheques

 Cheque issued but not presented in the bank in time for payment. The depositor credits his books of accounts as soon as the cheque is issued to the party but the party might not present the cheque for encashment. Cheque deposited in bank but not yet realized. The depositor debits his ledger account immediately after the deposit of a cheque into bank. But the bank does not credit it in the bank statement till collection.

  1. Deposit in transit 

 Deposit of cash into bank on the date of submitting bank statement to the depositor is recorded in the depositor’s ledger account on that day but it is credited in the bank statement on the following date.

  1. Cash deposit into bank directly by third party

The depositor gives instructions to its customers to deposit the amount due from them direct                   into his stipulated bank account. In such a case, if a customer deposits cash into depositor’s bank account directly, disagreement between two balances remains till it is recorded in depositor’s ledger account.

  1. Cash payment by bank as per standing order of the depositor 

The bank makes payment on behalf of depositor for insurance premium, interest on borrowed money, share installment money etc. and debits them in the bank statement of the depositor. But the depositor cannot record all these in his ledger accounts for not receiving information in time.

  1. Dishonor of cheque

When a cheque gets dishonored for insufficiency of funds it is debited in the bank statement and returned to the depositor but the depositor does not credit his ledger account till the information is available

  1. Bank charge, Commission etc 

Bank charges commission, interest etc. and debits the account of depositor for these charges but the depositor cannot credit his ledger accounts on the same date due to non-availability of information

  1. Depositor’s error 

If the depositor records any amount by mistake in his books of account, disagreement exists between the two balances till correction

BENEFITS OF AUTOMATED BANK RECONCILIATION

  1. Manual errors are reduced

All reconciliations are done on line – no handwritten work required.  This means that there is no chance of writing down a number and either transposing numbers within an amount or transposing numbers between columns.

  1. Easy delegation of work

Most bank reconciliation programs segregate deposits and cheques issued. This too can minimize errors and helps minimize fraud

  1. Time gains

Automated Bank reconciliation helps in saving time and manual errors. The time and manual efforts taken for doing bank reconciliation manually can be minimized.

  1. Reconcile daily

Automated Reconciliation can be done at your convenience either weekly or monthly or even on a daily basis. Most programs have imports that allow the bank file to automatically update the reconcile program with deposits and cheques that have been processed.

  1. Exception reconciling

Exceptional items such as Interest, exchange charges and bank charges can be easily identified in a bank reconciliation and accounted for accordingly

  1. Updated bank balances

With the help of automated bank reconciliations, bank balances can be updated periodically and this helps to know the exact balance in the bank as on date.

  1. Catch Bank errors and deal with them immediately. 

By using the reconcile program, errors are discovered and proceedings can start with the bank to make corrections.  Even with all of the tools available, mistakes do happen.  A bank deposit may be inadvertently deposited it to another’s account.

  1. Catch human input errors and correct them immediately 

Cheques are processed manually for specific reasons and then may get posted to the wrong bank account.  Reconciling on a timely basis catches these errors, and avoids costly overcharges on lines of credit.  Postings can be done in the wrong time period, too.  Catching these early promotes confidence in the financial statements.

  1. Errors are easily corrected 

In a manual bank reconciliation, making a correction is a very difficult and time consuming task.  Erasers, whiteout, white correction tape – whatever tool you can use to blank out the old numbers and write in the new numbers is the order of the day.  Or, you can just re-write the report.  In the bank rec, you change the numbers, and the report adjusts and reprints; and saves for next month.

  1. Legible, printed, clearly defined bank reconciliation reports.

Reports can be obtained from automated bank. Since it is automated, reports will be accurate and the reports will be presentable and can be easily printed.

CONCLUSION

Bank reconciliation helps in reconciling the bank book with our records. It helps in identifying the current bank balance and also helps to know if any fraudulent activity is taking place in the organization. Bank fees can be avoided for insufficient funds,it helps in organizing your payments.

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