Bank reconciliation is a critical internal tool to detect and prevent fraudulent activities. Most companies globally use bank reconciliation to identify any banking or accounting errors. It explains the differences between the bank balance position and internal accounting cash balance records. Despite the process being tedious traditionally, modern technology has disrupted the industry.
Bank reconciliation is not tedious if the correct systems are implemented and followed. The best bank reconciliation practices include maintaining all documents and records, performing triple reconciliations, analyzing the bank statements monthly, and identifying discrepancies.
It is essential for all companies globally to perform regular bank reconciliations, as it will allow the company to compare internal accounting records with the bank’s records, enabling any fraudulent activity to be identified.
In this article, we'll go over some bank reconciliations best practices that you can immediate implement to make the process less tedious and time-consuming.
5 Best Bank Reconciliation Practices
Most well-run and profitable businesses worldwide have a type of bank reconciliation installed. Regular bank reconciliations will increase a business's profitability and reduce its yearly losses due to theft or fraud. While bank reconciliations are important, they have traditionally been time-consuming and tedious.
However, with the introduction of modern technology in accounting and banking systems, the tediousness associated with bank reconciliations can be minimized. Experts suggest maintaining an accurate record of all documentation and accounting information, which can be analyzed appropriately.
Moreover, performing frequent triple bank reconciliations will reduce the likelihood of any mistakes and improve overall accuracy. The process's tediousness will be further reduced by breaking the process down into smaller pieces and analyzing any notable discrepancies. As with most industries, modern technology has caused significant disruption, with tools to automate the process becoming widespread.
To dive deeper, here are some bank reconciliation best practices you can implement today.
1. Maintain accurate Documentation and Information
It is vital to maintain accurate documentation and information to reduce mistakes, inaccuracies, and the tediousness associated with bank reconciliations. Maintaining all the necessary documentation and information will make it easier to identify any mistakes in the future.
In addition, it will allow for a greater view of the complex picture at hand as all the required documentation and information are instantly available.
One of the aspects of bank reconciliations that makes it so tedious and time-consuming is locating a missing piece of information at the start of the process. If any statement is missing, the entire process must be started again, leading to unnecessary complications and mistakes.
However, by maintaining accurate company documentation and information, future mistakes can be avoided, and the associated tediousness reduced. Before the bank reconciliation process can be initiated, obtaining all the necessary documentation and information from the appropriate employees is critical.
2. Conduct Frequent Triple Reconciliations
Best bank reconciliation practice requires you to perform frequent triple reconciliations, which will streamline the process, reduce mistakes, and prevent fraudulent activities. While performing bank reconciliations, it is important for the company to accurately account for the tills, which is an essential step within the process. The process will be more challenging if the tills are not included during the analysis phase.
To streamline the process, industry experts recommend performing frequent triple reconciliations. This involves utilizing the book balance, the cash book, and the main accounting balance. By implementing frequent triple reconciliations, companies will drastically reduce the likelihood of mistakes, internal fraud, and associated dreariness.
3. Break Down the Process Into Smaller Pieces
Accounting experts recommend breaking the bank reconciliation into smaller pieces. Breaking the process down into smaller sections will reduce mistakes and identify discrepancies.
Best bank reconciliation practice will necessitate the company to initiate the process by analyzing the previous month’s final closing balance. By starting the bank reconciliation process with the previous month’s closing balance, you will not have to start the process from the beginning again if a small accounting error occurs.
Nothing is worse than undertaking an entire bank reconciliation only to be forced to review it entirely from the start due to an unforeseen mistake. If there is an error within the bank reconciliations process, the person undertaking it must painfully review it line by line. However, by breaking it down into smaller pieces, general errors will be reduced, fraudulent activities prevented, and the associated tediousness substantially reduced.
4. Analyze and Identify any Discrepancies
Before starting the entire bank reconciliation process, if an error is identified, it is recommended to note the type of mistake. Some errors within the bank reconciliation process can be painlessly fixed, removing the necessity to tediously comb through the accounting statement line by line. Simple account errors can be mended without having to undertake the painful process again.
Simple bank reconciliation mistakes:
It is important to analyze any bank reconciliation discrepancies for these mistakes as it will allow you to avoid significant pain and reduce associated time consumption.
5. Implement Appropriate Modern Technology
Pen and paper records will always be more prone to mistakes than automation. Modern technology will continue disrupting the accounting industry as it minimizes associated tediousness.
Currently, tools are available to automate and enhance the tedious bank reconciliation process. In addition, modern technology also increases the processes’ control and efficiency.
While there are many different modern technology tools available, the most appropriate one for bank reconciliation processes will allow those responsible to directly import any information obtained from the bank. Furthermore, it will enable employee payment journeys to be identified and analyzed, dramatically decreasing the probability of internal fraud or costly mistakes.
Bank reconciliation has always been a painful and tedious process, although it is critical for businesses globally as it reduces fraud while increasing yearly profits. However, modern technology and refined traditional practices can minimize costly mistakes and the time taken to accurately analyze the statements. Bank reconciliation will be a breeze by implementing the suggested tips in this article.
(Related: 5 Small Business Accounting Best Practices to Keep the Books Tidy)