A bank reconciliation is nothing more than a comparison of balances. Specifically, the accounting balance to the bank balance. In theory, the ideal is that these two balances are always the same. But in theory we know that this is not the case.
Through bank reconciliation, it becomes possible to identify possible fraud, errors and accurately report the company’s profits and expenses. This avoids tax problems and difficulties in generating accounting documents.
Continue reading to learn the importance of bank reconciliation and how it should be done!
What is bank reconciliation?
Reconciliation consists of identifying any variation that may exist between the recorded data and the data contained in the bank statement. After all, as a rule, what is correct should always be what is contained in the statement. The accounting department should only replicate/mirror what is in the bank.
It is typical for many businesses to experience cash flow issues at the end of the month, unexpected bill payments, and late payments. However, bank reconciliation is one method of resolving this. It guarantees that the data entered into the system is consistent. In the end, it verifies that every entry has been entered in the bank account by comparing them all.
Let’s use an example to make it clear: let’s suppose you have a bakery and, one morning, you sold R$100.00 by debit card, but you only noted these sales in your Excel spreadsheet. At the end of the day, you issue your bank account statement and compare the entries with your notes to confirm that the amounts are actually in the account. This is bank reconciliation!
What are the types of reconciliations?
For you to have a better understanding of what will be covered in this post, you need to understand that there are several types of reconciliations, accounting, tax, assets and banking in question. They all consist of comparison and analysis to validate information, but each in different areas.
Accounting reconciliation is the process of comparing account data, such as bank statements, with the financial statements (balance sheets, general ledger). While asset reconciliation verifies the information from asset accounts and compares it with bookkeeping, tax reconciliation analyses the tax entries with the tax legislation.
What advantages does bank reconciliation offer?
Verifying that there are no data errors in the company’s internal controls is mostly dependent on bank reconciliation. It also reduces the likelihood of errors or fraud and increases cash flow predictability for the business, preventing unpleasant shocks with unrecorded items.
In short, reconciliation is very important for good financial management . After all, good management depends on accurate information and true and precise data.
All of this contributes to:
- Good decision-making, because knowing exactly what value the company has at its disposal makes it possible to take bolder actions.
- Control over the company’s financial health, preventing the company from possible bankruptcy or pending proceedings before the Federal Revenue.
- More profit and less loss, from the moment it becomes possible to make more realistic and effective planning.
Difference between reconciliation and cash flow
Cash flow is essential for a company’s daily operations. Therefore, the main objective of this tool is to determine the current available balance and plan, so that there is always accessible working capital both for the company’s operating costs (payroll, taxes, suppliers, among others) and for investment in improvements (renovations, purchase of equipment, for example).
Many people confuse bank reconciliation with cash flow. But the difference between them is clear: Cash flow is the internal control, which can be done in a spreadsheet or by software, that records everything that came in and went out. While bank reconciliation is the act of comparing cash flow to check if everything that is there is also in the bank.
What is needed to start a bank reconciliation?
Now that you have learned the concept and its importance, let’s move on to some tips on how you should do this reconciliation:
1. First, define how often the analysis will be performed. Whether every 15 days, once a month or every week.
2. Second, list all bank accounts used by the company, as they should all serve as a comparison.
3. Third, keep your cash flow up to date. Ideally, it should be updated daily to avoid the risk of something being overlooked.
4. And fourth, keep all supporting documentation possible. From purchase and sales invoices, to receipts and vouchers. This is necessary because at the end of each month it is necessary to send the documents to accounting to carry out the accounting reconciliation and complete the accounting documents.
Manual bank reconciliation
It is possible to perform bank reconciliation manually using spreadsheets or notes. Choose one of these tools, start comparing the amounts, correct any errors found and send them to accounting.
However, depending on the volume of movement that exists in the company, it becomes unfeasible to record everything and compare manually. In short, automatic reconciliation applies to this scenario.
Automatic bank reconciliation
To easily and conveniently carry out financial processes, in this case, bank reconciliation, the ideal is to have a management platform, or bank reconciliation software.
This type of solution allows you to generate your bank statement, automatically compare everything that was entered throughout the period informed and, depending on the situation, it can even be integrated with your payment system.
