What is Bank Reconciliation? Get to know the function and terms!

In the world of accounting and banking, there is a term known as bank reconciliation. So, what is a bank reconciliation?

Some people may still be confused by the notion of bank reconciliation, its function, and the terms contained in it. So, every company must have a bank account to save their money. The amount of cash stored at a company is generally only petty cash . Opening a company account at a bank aims to control the company’s cash in general. However, companies must have their own records of incoming or outgoing funds, not completely dependent on the notes from the bank. However, differences are often found between company and bank records, because there are costs that are not calculated. For example bank administrative costs, interest distribution, and others.

In the general ledger of a company listed transactions involving current accounts. On the other hand, the bank also keeps records of the company’s current account when processing checks, deposits, service fees, and other corporate items. This bank note lists the activities in the bank account and also the balance in it. At the end of each month, banks usually provide this report to the company. When receiving this report, the company must verify whether the amount on the bank statement matches the amount in the company’s cash account in the general ledger, and vice versa. This verification process is called bank reconciliation. Bank reconciliation is the process of matching balances in company accounting records with related information on bank statements .

The purpose of this process is to ensure the similarities and differences between the two. Bank reconciliation must be done because the information contained in the bank statement is a bank record of all transactions that have and have an impact on the company’s bank account for the past month. Reconciliation must also be completed periodically on all bank accounts, to ensure that the company’s cash records are correct. It is also used as better control over receipts and payments made in cash.

Also read:  Easy Ways to Make Simple SME Financial Reports

Why Is Bank Reconciliation Required?

Bank reconciliation is very necessary for companies because they know the following:

  1. Companies can find out the amount of the difference in cash balances on bank statementsthat are different from the company’s books.
  2. To find out the causes of cash balance differences on bank and company records.

When should you do a bank reconciliation?

A company will at least reconcile once at the end of the month. This process is carried out immediately after the bank sends the company’s bank statement containing the initial cash balance, one-month transaction and the final cash balance at the bank. However, it would be better if the company did it every day by accessing information that can be accessed through the websitebank. By completing bank reconciliation every day, the company can immediately find problems in the bank account, find the source of the problem and find a solution. If the company finds little activity in the bank and looks like it doesn’t need a verification process, then that needs to be suspected. Because it is very unlikely the company’s final balance and bank’s final balance will be the same. At any time there are certain possibilities of payments, deposits, bank service fees, penalties and other transactions that have not been recorded by the company. If this happens it is better to close the account and put the remaining funds into a more active account. By doing this, it will be easier to invest the remaining funds and monitor the investment status.

Components in Bank Reconciliation

There are several components that appear when conducting bank reconciliation, which are as follows.

  1. Deposit in Transit. Cash and / or checks that have been received and recorded by a company, but have not been recorded in the bank records where the company holds funds. If this happens at the end of the month, the deposit will not appear on the bank statement, and therefore be a reconciliation item in the bank reconciliation. A deposit in the process occurs when the data arrives late at the bank so it cannot be entered in the record on that day. Another cause is if the company sends a deposit but is delayed or the company has not sent a deposit to the bank at all.
  2. Outstanding Checkis a check that has been recorded by the company, but has not been cashed. If it hasn’t been resolved, it won’t appear on the bank statement.
  3. Non-Sufficient Fund Checkis a check that is not accepted by a bank because there is insufficient funds in the company’s account. If this happens, the bank will still issue a debit memorandum with dishonored amounts and the balance in the account will be reduced. To issue this check, the company will be charged a processing fee.

Accounting Software Simplifies Bank Reconciliation

After understanding what bank reconciliation is, you need to implement the process. The bank reconciliation process is not a difficult thing. However, accuracy and accuracy are needed so that nothing is missed from the examination. And of course this long process will take up a lot of time. However, now you no longer need to bother when dealing with bank reconciliation. Journal accounting software with its Reconciliation feature will make it easier for you to make matching outgoing cash and incoming cash with outgoing / incoming money in your bank account. Through the Cash Link feature , Journal helps your company’s reconciliation (matching) process in just 2  steps, i.e. the withdrawal of the mutation automatically and immediately followed by automatic matching ( smart reconciliation ). This certainly makes it easier and faster the processes that run in your company / business. Just by connecting your bank account with the Journal, you no longer need to bother doing the reconciliation process manually.

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