Tips for Efficient Bank Reconciliation Statement

Tally Solutions |Updated on: September 22, 2023

What is bank reconciliation?
Why does bank reconciliation matter?
Tips for efficient bank reconciliation
TallyPrime for bank reconciliation

What is bank reconciliation?

Bank reconciliation is a process whereby you compare your financial cash transactions with those of your business bank account. It is used to find any discrepancy between the two sets of data. Book balance is the balance of the cash records that you have kept in your records. A bank balance is a balance that is kept by your business bank account. Most of the time, businesses can find differences between the two accounts. A bank reconciliation statement is a summary of the activity that encompasses the reconciliation of your financial records with the bank account. It includes activities such as withdrawals and deposits.

Bank reconciliation is quite helpful when the time for an audit arrives. When an annual audit takes place, auditors take bank reconciliation into account when analyzing your business transactions. This can help them with testing. For a business, there are numerous reasons why bank reconciliation is important. For example, it helps to pinpoint the errors in recorded transactions so that proper adjustments can be made where the error has occurred. Not performing proper and regular bank reconciliation can cause loads of problems and can even lead to your bank account being shut down by the bank.

Why does bank reconciliation matter?

Getting a bank reconciliation statement is crucial for every business. Here are four reasons why it should matter to every business regardless of size and industry.

Fraud detection

The number one reason bank reconciliation matters so much is to see if something is going amiss. You won’t have control to stop fraud from taking place, but you can certainly detect when it occurred. Let us say you make a payment to many suppliers and one of those suppliers is up to no good. He changes the amount you wrote on the check that you sent to him. You won’t be aware of any wrongdoing until you perform bank reconciliation. Then when you go through your transactions thoroughly you will be able to pinpoint the fraud and when it occurred. Regular bank reconciliation ensures you detect fraud as early as possible.

Efficient cash flow tracking

The statement of cash flows is an important one to track because it unveils details of your business that nothing else can. It shows you the business liquidity and your ability to take loans for longer terms. Bank reconciliation can help with tracking cash flow. It does so by making it easier for you to understand the moment when cash has entered the business and compare it to when it reaches your bank. This can make you improve processes such as cash collection and it can also improve the way you spend money on your business.

Error detection and fee tracking

The bank reconciliation statement enables you to find accounting errors that you may have made without knowledge. For example, you might have entered the same transaction twice or missed a recording of a transaction that is available in your bank statement. Bank reconciliation helps spot errors quickly. When it comes to tracking fees, you can find out if the bank has charged any fees to your account or even penalties in some cases. When calculating and balancing your books, you should consider these and ensure you have subtracted or added all that is part of your business transactions.

Objective look at business

You don’t want to be making assumptions about your business and base your decisions on those assumptions. Instead, you want a reality check. A bank reconciliation statement lets you do that. When your bank records and books don’t match, you might be making decisions that aren’t particularly good for your business. For instance, you might not know that you have more money that can easily be reinvested in a portion of your business that requires it. As the bank reconciliation ensures the accuracy of your cash balance, it is an excellent way for you to see your business as it is rather than as you think it is.

Tips for efficient bank reconciliation

The following are some practical tips for a better bank reconciliation statement.

Schedule bank reconciliation

There is no rule stating when you should perform bank reconciliation. However, it should directly depend on the number of transactions. For instance, if you are a small business with cash flowing in and out of your account then it can be ideal to reconcile every single day or every few days. If the volume of transactions is pretty less then reconciling every week or month is also fine. The key is to ensure you are up-to-date with your reconciliation. You don’t want to reconcile every few months then after a year because there will be an unnecessary burden on you. It is best to schedule reconciliation.

Be prepared with documentation

You must be prepared with all the documentation you need before you sit down to reconcile your records. There is nothing worse than running around trying to track something and then finding out that it isn’t available. Instead, save yourself from the madness and gather all the information in one place. Then begin your reconciliation. If you need to call people and ask them for receipts, then do so. The point is to have all that you require right before you so that you can reconcile and match every record accurately. This will make it easier for you to reconcile and it will minimize confusion for the most part.

Produce a reconciliation report

You don’t have to make a reconciliation report, but in certain cases, it is a good idea to do so. Let us say due to a late deposit in your bank account, a discrepancy was created. If you know this has occurred, then creating a reconciliation report is a good idea because you know the reason why the closing balances don’t match. When the time of the reconciliation comes again, it becomes easier to reconcile as you know why the opening balances differ. This is especially for those businesses that have a long gap between one reconciliation to the next.

Reconcile in sections

Reconciliation is a tedious and long process. However, there is a way to make the job easier for yourself. You can check the closing balance of the previous month and then move on from there. This can save you the time and effort needed to check each and every transaction. You can simply tally section by section and in this case month by month to make reconciliation a tad bit faster. When you find the monthly balances don’t match, you can backtrack from there and see where the problem stems from. This is a good idea for small business owners who generally have minimal differences and reconcile regularly.

Avoid typical errors

When you are entering records, you might have made certain errors that may have contributed to the difference in balances. For example, you might have made an entry two times instead of just once which created a discrepancy. Another common mistake is to swap the digits by mistakes while typing such as writing 467 as 476. Did you forget to add the receipt amount that you received later than expected? That is also a common mistake that can cause problems in producing a reconciliation statement. Even a small error can mean a big difference in many cases and so you want to always be careful when entering details and storing them as it makes reconciliation easier and hassle-free.

Consult bank when necessary

People who work at the banks are only human and there is a very slight chance they might have made an error. But there is always that chance. If, despite all your efforts, you find that the error may have been from the bank’s end, talk to them. It is better to get the matter sorted if you are sure that you haven’t made a mistake. When you have multiple bank accounts in the same bank then there is a higher chance of this occurring. If you cannot find a reason why there wasn’t a deposit although in your cash records there was, it is best to consult the bank and get your doubts cleared.

Automate bank reconciliation

When you want to ensure proper reconciliation, take the route of automation for the fastest and best results. This can cut down on how long it takes for bank reconciliation to occur. Accounting software tools can make bank reconciliation the least time-consuming process because they do the job for you. If you already feel bogged down by your things to do, then opting for business accounting software is an excellent solution that can make it easier to spot errors and fix them before you know it. You will also be more in control when you choose automatic bank reconciliation using the software.

TallyPrime for bank reconciliation

Get a bank reconciliation statement with ease with the ultimate business management software TallyPrime. You can easily check the correctness of your bank reconciliation and recover reconciliation of any date of your choice. You have the option to reconcile manually when you want to get in the nitty-gritty of your transactions or you can even automate the task of the bank reconciliation for error-free reconciliation. You can smoothly perform reconciliation tasks and accounting tasks with only a few clicks. TallyPrime is one of the easiest accounting software packages that gives you control of your finances.