The purpose of a bank reconciliation statement is to compare the financial activities listed in the accounting books with the financial statements. The bank reconciliation statement assures the authenticity of bank balances by assisting in the verification of the authenticity of the entries made in the books of accounts.
You might be asking why the bank transactions listed in the books of accounts and the bank statement do not match after reading the definition of a bank reconciliation statement. There are several causes, some of the more prevalent of which are given below:
1. Issued checks that haven't been cashed at the bank
2. Difference between the deposit and credit dates of a check
3. There is a difference between the date a check is issued for payment and the date it is debited.
4. There is no presentation of the issued or received check to the bank for clearing.
5. Bank interests, fees, etc. are not taken into consideration. Because you won't know unless you reconcile.
6. Banks are also capable of making errors while debiting or crediting transactions.
7. You have the same potential for error as banks when recording monetary operations in financial accounts and other places.
8. The closing bank balance in your books of accounts and the real bank balance will differ for the reasons mentioned above.
Bank reconciliation statements are created to prevent those scenarios. Such reports merely compare the financial operations recorded in the annual reports of the companies with the bank statements, ensuring that the books of accounts always show the correct bank balance.
Reconciliation tasks are completed daily, monthly, fortnightly, etc. based on the quantity and value of bank transactions. To reduce the danger of a payment or check bounce, daily reconciliation procedures are performed if the number or value of transactions is higher.
The procedure of locating each activity separately and comparing it to the bank statement in order to ensure that the closing balance of the bank in the books and the bank statement agree. One that is mismatched will have the appropriate modifications or corrections made in the book to make it match.
Using the manual and traditional approach of bank reconciliation is demanding and prone to error when comparing the two statements with a lengthy list of transactions.
The first and only way to get around this is to use accounting software to "computerize" the bank reconciliation procedure. In daily operations, it saves time and effort. More crucially, the books of accounts provide accurate and nearly real-time information on the bank balance.
Streamlining bank reconciliation in this context simply means entering commercial transactions, including bank transactions, into accounting software so that bank reconciliation statements can be generated automatically. Additionally, accounting software will enable you to easily and instantly adjust the financial records.
The advantages of employing accounting software to automate bank reconciliation are as follows.
Simple to reconcile: By using accounting software, you may automatically produce a bank reconciliation statement and reconcile with the least amount of effort.
saves time and effort: The time and effort required for reconciliation are the same whether there are 50 or 500 transactions. Since the bank transactions are automatically reconciled, you will save a lot of time and effort on this task.
Detecting unaccounted transactions is easier: Learn about new activities that haven't been accounted for, such as bank fees or interest, and do an easy reconciliation.
The total time and chance of mistakes during bank statements will be reduced thanks to swipe's auto bank reconciliation. Swipe's auto bank reconciliation feature offers a straightforward way to match up your company's bank records with the bank statement.
It is efficient, clear-cut, precise, and stress-free. It helps you save time, money, and labor.
Comparing accounting records operations to bank statement operations is the initial stage in balancing a bank statement. Modifications to the bank statement balance should be made for any bank discrepancies, unexplained deposits, and unpresented checks.
Some individual or company accounts don't take bank-related expenses like interest and service charges into account. For these variations, the cash account records need to be adjusted. Compare the balances to verify if they match after corrections and adjustments have been made. If not, try again until the accounts are balanced.
When reconciliations are infrequent, it might be challenging to solve issues because the necessary data may not always be accessible. A mismatch might also happen when activities are not immediately reported and when bank fees and penalties are in effect.
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