What Are The Advantages Of A Bank Reconciliation Statement?

What is a bank reconciliation statement?

Bank reconciliation is the process of matching two bank balances – the one in the company’s own records and the one on its bank statement – and ensuring there is no difference whatsoever.

This helps to provide reliability and consistency in accounting by proving that the money leaving the company account is the same as what has officially been spent.

Why is it important to a business?

Bank reconciliation is the quickest way to identify any discrepancy between balances. Any unexplained discrepancy could be a sign that a theft or fraud has occurred within the business, and should be thoroughly investigated with all relevant staff members.

It can also help to identify any fraud as they are occurring rather than after it has occurred, meaning that the resulting damage can be kept to a minimum. The earlier in the process a discrepancy is spotted, the less disruption is caused to the business.

How often should a bank reconciliation statement be completed?

For big companies, bank reconciliation should take place every day – the more frequently it is done, the greater the chance it has of eliminating any irregularities. Some companies perform bank reconciliation less regularly – every month, for example – but this can increase the possibility of serious error, depending on the size of the business.

Many businesses undertake the process using automated bank reconciliation software, which helps to make the process as quick and smooth as possible.

What are the advantages of a bank reconciliation statement?

A bank reconciliation statement is used to verify that the cash balance in the general ledger matches the bank account. It provides a clear view of timing differences and discrepancies, and supports accurate reporting and effective financial control.

1. It identifies fraudulent activity

As explained above, when comparing your company’s own bank book with the transactions that your bank has on record, you will be able to spot anything that doesn’t match up.

On some occasions, the process might simply identify a transaction that you have forgotten to record. But at other times, it could identify a transaction that has been carried out by an unauthorised person in an attempt to steal money from the company’s account.

2. It helps to prevent mistakes

No matter how meticulous your accounting is, there is always a margin for human error. Common mistakes include double payments, missed payments, lost cheques and simple arithmetic errors – although this can, of course, be reduced by investing in digital finance transformation to automate procedures right across your business. With a bank reconciliation statement, you can spot and rectify any mistakes quickly, no matter what the cause behind them.

3. It keeps the account in good standing

Having a close eye on your company’s balance through bank reconciliation statements means that you are less likely to spend money you don’t have, causing you to overdraw or miss a payment, and having a negative impact on your credit score.

Many banks will also impose overdraft fees, meaning that bank reconciliation statements can help to save money, too. In addition, regular bank reconciliation statements will help you notice if the bank starts charging you a new fee, allowing you to look into the reasons why.

4. It helps with receivables tracking

If your company has customers who still use a lot of cheques to make payments, it is easy for these to be forgotten or misplaced. Taking the time to complete a bank reconciliation statement means that you are more likely to quickly notice if your own accounts record payments from a customer, but your bank account does not.

What are the disadvantages of a bank reconciliation statement?

Bank reconciliation statements can also present challenges in practice. Common issues include:

• Cheques that have not yet cleared can create what appears to be a mismatch between the accounts. If there are multiple instances of this in a single financial period, it can be very difficult to reconcile – this is another reason why daily bank reconciliation is recommended.
• The dates recorded by the bank may be different to the dates in your own records. The difference between the two can be as big as a month if a cheque takes a long time to clear, opening up the possibility of discrepancies and errors occurring.
• If you run a large business with many transactions occurring on a single account, the confusion involved in matching transactions becomes greater with more transactions.

What are the benefits of using automated bank reconciliation software?

Both the advantages and the disadvantages outlined above are reasons to invest in bank reconciliation statements using automated software. Not only can you complete the process with fewer errors, but you can also integrate it into the working day much more smoothly – and see the benefits daily.

Reasons to opt for the latest automated software include:

• Integrated reports that allow you to manage multiple bank accounts at the same time
• Easy creation of payments, receipts and transfers with the option to consolidate as many times as you like over the course of the month
• Live bank feeds that help identify and deal with discrepancies faster
• Auto-matching of transactions as part of a single process
• Regular automated uploads of bank transactions for faster period-end closing
• Easy visibility of transactions right across your organisation for all relevant stakeholders

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