What is a bank reconciliation and how are they done?

What is a bank reconciliation and how are they done?

The details of a procedure that adds efficiency to company operations, and the benefits of addressing it with automated systems.

Table of Contents:

As we corroborate that data is “the oil of the 21st century”, systems that automate the management of large volumes of information are becoming more relevant. The rise of artificial intelligence is an example of this, with opportunities that were unsuspected just a few years ago and that today provide agility and efficiency in multiple areas, including the business world.

The reconciliation is a key concept in this revolution, what is it and what are its benefits for companies? Stay to learn more.

What is bank reconciliation?

The bank reconciliation is a useful procedure to know the state of a company’s finances, to identify errors in the accounting, and to validate the reliability of the records in the operations.

In practice, it consists of comparing the records of bank account transactions (available in the accounting books) with the movements recorded by the banks (in the statements issued). In doing so, it is possible to make any necessary corrections.

The very definition of bank reconciliation reveals that it is one of the best practices of the entrepreneur, since this exercise helps to make better decisions based on the data, through validated and properly processed information.

Keep in mind that the purpose of bank reconciliations is not to match the bank balances recorded by the company with the statements. Instead, the purpose is to determine which variable has generated the difference.

What are the benefits of automating bank reconciliation?

This process presents a true and fair view of business accounting. While it is not a mandatory exercise, it is 100% recommended because of its many benefits for firms of various sizes and industries.

We say, then, that bank reconciliation is not an obligatory process, although it is recommended, useful to improve processes and manage resources; oiling the gears in companies.

As we pointed out in the first lines of this review, automation is a key variable in this area. Reconciliations can be difficult, which is why many companies avoid them or perform them less frequently than recommended. There is good news: there are tools that simplify and streamline this fundamental task.

What are the benefits of automation in bank reconciliation? Take a look..

  • Automated processes provide agility and avoid the obstacles that usually occur in manual processes.
  • In this sense, they circumvent complexity.
  • They allow companies to take real advantage of the innovative processes inherent to digital tools. In this way, activities in various business areas manage to “jump on the bandwagon” of technological advances.
  • It is a necessary exercise to verify that the accounting information of your company is accurate, coinciding with the balances of your account.
  • When properly implemented, the process serves to know the cash flow, what it was spent on, prevent losses, and verify that no more money has been spent than entered.
  • Through automated reconciliation software, errors that may be made by human agents are reduced, facilitating detection and solutions.
  • These systems allow more frequent reconciliations to be performed, further reducing the margin of error.
  • It is an integrative procedure, relevant for companies operating in an increasingly digitized world.
  • With clear information, better decisions are made.

The advantages of reconciling with automated systems that we have mentioned converge in a better management of super valuable resources such as time, effort and money. In this way, by freeing themselves from mechanical and repetitive tasks, the members of a company dedicate themselves to matters related to the core of the business.

It has already been said and repeated: “time is money”, and automated reconciliation allows savings in both directions.

Example of bank reconciliation

Let’s imagine that a company purchased a new computer for its offices for $2,000. When performing the bank reconciliation corresponding to the month of purchase, the amount on the invoice issued by the seller is compared with the movement reflected in the bank account.

To graph the example comprehensively, it is important to note that the exercise also applies to company sales. For example, the same company offered a service for which it charges $30,000 to a customer. When reconciling, the amounts invoiced and the income to the account must also match.

How to automate a bank reconciliation: step by step

Based on the examples of bank reconciliation given in the previous point, we could assume that this is a simple process. Compare, simply.

However, as activities multiply and processes are added (deposits, drafts, checks, credit notes, etc.), extreme organization and full attention become essential. Automation has arrived to simplify the exercise.

In order to automate, three fundamental elements are required.

  • Up-to-date accounting books.
  • The bank statement.
  • The reconciliation document, which may be a spreadsheet.

As we explained in “Why Entrepreneurs Need to Know About Bank Reconciliation”, the layout of the spreadsheet is simple. The date, the item or transaction, and the amounts recorded in the ledger and on the bank statement should be entered.

Then, all operations are compared to see if they match. That is what reconciliation is all about.

This process can be solved in this way, although when operations are large and companies grow, it is convenient to move forward with solutions that automate the exercise. As we have seen, the purpose is to avoid errors, achieve efficiency in the results and achieve better resource management.

One of the most common mistakes in bank reconciliation is to consider that the process will always be simple, without adjusting to the growth of the business, which, with this development, will require new solutions.

If you have noticed that the volume of data in your company “demands” more efficient resources, Conciliac has the answers you are looking for. Conciliac EDM is a platform that combines integration, productivity, administration, analytics and automation, among other variables.

In addition to bank reconciliation, our solutions are useful for inventories, payroll and other processes that involve large volumes of information. The results? Add to your company’s operations the benefits we have detailed through a unique and flexible platform, so that artificial intelligence accompanies human intuition, without leaving it aside.