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The importance of bank reconciliation in your company’s finances.

First, the finances of any company have a relevant role, because it aims to optimize and achieve the multiplication of money. Therefore, it is essential that every organization, large or small, has timely, useful, clear, relevant and concise information to make the best decisions.


Based on the information available, you can predict the future and you can see where the company will take. So it requires a lot of attention and ability to do so.

That is why financial analysis is a fundamental part of the strategic planning process of an organization. Which is a continuous process for the efficient allocation of resources, both material, human and especially financial, that allow the achievement of strategic objectives and goals.

Therefore, all information and data concerning the organization comes from all its daily operations, be it sales, purchases, services, but all these operations involve a series of transactions in which money is involved.

Financial transactions

First, in the normal cycle of operations in a company, financial transactions are constantly carried out on a day-to-day basis, for which it uses the bank as a financial ally. Which is a savings and loan financial institution, where the company has full confidence to deposit and manage its money coffers.

All organizations require bank account management to facilitate their business operations, so they make contracts with banking institutions that allow them to manage their financial resources.

Opening a bank account allows the company, in addition to managing its finances, to have source documents to make its accounting records and thus facilitate control of operations.

However, these financial transactions that involve the company’s operations are reflected in reports called bank statements, either printed by the bank or extracted from the bank’s website on any day of the month.

In these statements you can see both balances in bank accounts and bank transactions, which we named below:

  • Deposits either in cash or checks, mostly indicates the check number, bank from which the check is issued, amount and deposit date.
  • Checks issued by the company cashed to the bearer or deposited in the bearer’s bank account.
  • Bank transfers issued to suppliers and employees.
  • Bank transfers received in the bank account of the company from customers or suppliers.
  • Reverse transactions, in case we reverse a transfer or a check has been returned due to multiple causes such as: lack of funds, expiration, errors in the data, among others.
  • Bank commissions: they are amounts of money charged by the bank, the rate depends on the bank where the company has the bank account, for each transaction the company makes, from the beginning of the month until the end.
  • Financial income: are amounts of money that the bank deposits in the bank account of the company, the percentage depends on the bank where the company has the bank account. This scenario occurs when the type of bank account is savings, that the bank liquidates that money in favor of the company based on the system of mobilization of the account or the amount of money that has been stored there until the end of the month.
  • Bank payments or loans received by the company, are classified in the reconciliation as a credit to the bank account.
  • Interest on bank loans, are amounts of money charged by the bank to the company based on the interest rate on the loan acquired. The interest rate depends on the bank where the company has the bank account, the amount and the conditions of the bank loan.

All bank transactions named above must be recorded in chronological order and with their respective print media, both in the company’s financial records and in its monthly and annual accounting.

Bank transactions, the company or rather the financial analyst must record them as:

  • Debit notes: are all those transactions that involve a debit or discharge of money in the bank account and must be properly supported. These transactions can be: checks issued, transfers issued by the company, bank commissions, among others.
  • Credit notes: are all transactions that register a credit or deposit of money in the bank account and must also be well supported. These transactions can be: deposits received in cash or by check, transfers received, among other transactions.

It should be noted that in accounting the bank balances both at the beginning and at the end of the monthly period reflected in the bank account statements and which must obviously coincide with the company’s bank book. Which is the amount of the amount reflected in the account of nominal type called Bank.

Which your movements should be recorded both in the daily book and in the company ledger.

That, at the end of the accounting cycle in the preparation of the financial statements, goes as a current asset reflected in the statement of financial position, according to international financial reporting standards.

But sometimes the balances and transactions reflected in the bank statements do not match the financial report made by the financial analyst in the company.

This is due to reasons such as:

  • Deposits in transit.
  • Checks in transit.
  • Debit and credit notes made by the bank but not made by the company.
  • Errors in the company’s bank book.
  • Errors in bank statements.

All these aspects mentioned above must be taken into account before carrying out the process of administrative and accounting closure of the company, because they must coincide.

Like all this financial information it has to coincide in both administrative and accounting reports. There is a financial procedure with which we can match the balances and bank transactions to the financial reports of the company, that procedure is called bank reconciliation.

Bank reconciliation

The bank reconciliation is considered as a process of verification, verification and control between the administrative and accounting records of the company with the movements of the bank account belonging to the organization.

It is a simple and simple way to verify whether bank records of both the company and the bank are well or poorly prepared.

Because the balance must be compared and analyzed at the end of any given day, that is, the balance of the bank account statement and compared with the balance of the major account of the bank in question. If both balances are equal, it can be determined and verified that the bank is properly reconciled.

However, it should be noted that bank reconciliation is not considered as a mandatory accounting record. But an internal control instrument that can be used by both the administrative and accounting departments of movements and transactions involving company money, deposited in the bank.

What to do before making a bank reconciliation?

  • Verify the registration of the company’s deposits in the account statement.
  • Check that the issued checks have been submitted for collection.
  • Check the checks that were left in transit in the previous reconciliation.
  • Determine the origin of the credit and debit notes processed by the bank.
  • Detect any error or omission committed by both the company and the bank.

How is a bank reconciliation done?

First, all deposits and transfers both issued and received by the organization must be added, compared with the deposits and transfers shown in the bank statement and identify and mark the ones that match (☑).

To check those who remained in transit and verify if any mistake was made either in quantity or location when registering one of them.

Then add all those checks issued or received by the company, check them with those that appear on the bank statement and validate those that match (☑). For this you can rely on Excel.

In order to identify the checks in transit and also know if any mistake was made when registering any of them.

Then you have to determine the origin of both credit and debit notes, as well as the mistakes made by the bank or the company when registering transfers, deposits or checks.
Then add to the balance according to bank at the end of the month, deposits or transfers that remained in transit and some mistake that has been made.

This result called subtotal is subtracted from checks that were left in transit and any mistake made, this operation will result in the balance reconciled according to the bank.

Finally, incorporate the balance according to the book, either administrative or accounting at the beginning of the month, ie the reconciled balance of the previous month. Deposits and transfers made by the organization, credit notes and any mistakes that have taken place in the records.

The result called Subtotal is deducted checks issued by the company, debit notes and any error that has been raised. What is obtained as a result of the balance reconciled according to the accounting or administrative book of the organization.

Recommendations to develop a good bank reconciliation

  • You must have all the necessary information and documentation at hand such as: invoices, payments made, divided, absolutely everything.
  • It is advisable to reconcile by sections. Either a month, fifteen days or every week that is ideal for not accumulating so much work.
  • Reason why the mismatches and differences. The error may occur because you forgot to post something or it was posted, but with a higher / lower amount. The review is extremely important
  • Do not forget to take into account the data of the box: per box you have been able to pay and collect bills that must be recorded.
It is important to note that there is no rule of when to make bank reconciliation. Bank reconciliation is usually done on a monthly basis in most companies.

However, there are those who do them biweekly or even weekly. It all depends on the time you have, the number of accounts to be reconciled and your accounting planning.

The importance of bank reconciliation in your company’s finances.

To achieve the strategic objectives of the company, it is necessary to know the resources that it has in a given time.
In turn to identify what the financial needs will be, what economic factors influence the finances of the company, determine how and when the capital will be invested and what financial instruments should be taken into account to achieve and maintain the necessary cash flow that allows and develop the productive activity.

For this we need to perform financial planning.

References for carrying out financial planning are contained in the most recent financial statement. These help to establish the strategies, objectives and performance indicators that will guide the decision making on financial investments and working capital.

The optimal management of resources not only has to do with the way they are applied but also with the way to maximize them.

For these purposes, financial planning focuses on:

  • Minimize risks
  • Seize opportunities
  • Anticipate needs
  • Search for the best performance
  • Guarantee the security

All the mentioned aspects converge on the importance of financial planning as the basis of the investment. Well, when past results are known, the present situation and future projections of the company can make better decisions about capital management.

In this sense, the design of different scenarios allows to evaluate the technical, operational and financial aspects of the possible investments to decide if they are feasible and convenient for the company.

That is why for the good progress in the organization it is essential to establish a good financial base.

This leads to the selection of a bank, which plays a very important role in achieving it, since it will allow us to effectively control the treasury of our company.

Therefore, it is important to assess the needs of each company versus the offer of the different banks and do not forget to analyze some issues of general consideration.

And once this deep analysis is done, we will have the ability to make the correct selection of the bank we want to work with.

Aspects to consider to choose the best bank for your company:

  • Cash Management: There is a big difference between paying, collecting and successfully managing payments and securing collections. In this process the company can implement financial products such as POS (Point of Sale Terminal), credit cards, security tokens and checkbooks. Which will contribute to make a correct planning of the flows of your treasury in the medium and long term.
  • Commissions: The commercial relations that the company has both nationally and internationally. As well as the flow of transactions that are expected to be carried out during the year, they directly affect the cost or expense of maintaining a bank account.
  • Financing: One of the most important issues for many entrepreneurs and entrepreneurs is to have a financing program that allows them to meet the sales objectives while developing their specific business activity.

Once you have chosen the ideal bank for the correct and efficient management of the company’s money, proceed with all the administrative and legal procedures necessary for the opening of the business bank account. Once opened, it starts to trade.

But these transactions must have a separate record from that of the bank. For that we use bank reconciliation.

That, from a financial point of view, is considered as the only way to achieve reliable and transparent accounting.

Performing this internal control exercise allows us to have a better view of the company’s current financial status. It should be noted that no matter the size of the business, bank reconciliation is a process that must be carried out as frequently as possible within it.

With the bank reconciliation process we will identify a series of items called “items pending reconciliation” that will be included in a bank reconciliation document. These items are made up of notes that have been accounted for by the company and of which the bank has no knowledge, and vice versa, items reflected in our bank statement and not accounted for.

This process, which could be very complicated if done manually.

It is greatly simplified by the use of software for treasury management. Which is used in many companies and that, automatically and under a series of previously specified parameters. This crosses the data that comes from the accounting with those that come from the treasury canceling those that match the parameters defined above and that are usually, among others, the amount and the date of operation.

This will greatly facilitate the control and registration of your finances, with which you can make better business decisions.

Advantages of bank reconciliation in your company

  • It avoids errors and complications, since sometimes charges appear in the statements of account that we do not know, but the bank reconciliation detects these transactions on time in order to correct them.
  • Check transactions from the point of view of the amount or location. It is very common to observe in companies that, in administration, there is a receipt or invoice that has been lost and for which it has not been accounted for, and the bank account statement states that such a transaction did exist and requires its prompt accounting.
  • It controls more efficiently the financial performance of the organization. The bank reconciliation allows a better visualization to understand in greater detail the progress and status of income and expenses. This will better guide business action and decision making in a timely manner.
  • To prevent losses. It is an extension of the previous point. It consists of detecting a possible bad course of the company and acting on time.

In conclusion, it can be said that a good bank reconciliation added to a correct reconciliation of the bank books of the company, is essential when you want to have a good management both administrative and accounting and thus more efficiently manage the finances of the company .

I hope it has been very useful.
Atte .: Mariajosé.
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