What requires an adjustment on the bank side of the bank reconciliation?

Companies across industries perform bank reconciliations to ensure the accuracy of their financial statements. By comparing internal documents with external statements, any errors or changes that need to be made can be addressed in a timely manner to complete accounting close. With advances in technology, bank reconciliation no longer has to be a time-consuming and error-prone process.

We’ll cover all this and more in this step-by-step guide on bank reconciliations.

1. What is a Bank Reconciliation?

2. What is Bank Reconciliation Terminology?

3. How do you Reconcile a Bank Statement?

4. What are the Steps for Bank Reconciliation?

5. What are the Problems with Bank Reconciliations?

6. How Often Should You Reconcile Your Bank Account?

7. Why Do a Bank Reconciliation?

8. Why Use Bank Reconciliation Software?

9. Why Do Balance Sheet Reconciliations?

10. What are the Best Reconciliation Tools?

11. Features

12. What are the Steps in Financial Reconciliation?

13. Why Use Automated Reconciliations?

14. What are Best Practices for Month End Reconciliation?

15. Wrap Up

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What is a Bank Reconciliation?

Bank reconciliation refers to the process of comparing financial statements to a bank statement. While it can be performed by an individual for their own finances, it’s a process that happens within almost every business.

A bank statement shows what transactions have taken place in a business’ bank account over the last month. At the same time, your business maintains its own financial records. By comparing your cash balance on your balance sheet to the amount on a bank statement, you’re able to ensure that transactions are a reflection of reality.

By conducting bank reconciliations on a regular basis, you can detect fraud and rectify mistakes quickly. However, due to the timing of transactions, the cash balance on a bank statement and within the cash balance of a balance sheet are frequently different. The use of a bank reconciliation will tell you whether or not the difference is explainable or actually indicative of an issue.

Companies have the option to conduct bank reconciliations at their own frequency, be it daily, weekly, monthly, quarterly or annually. Given the deployment of automated bank reconciliations, it becomes feasible and effective to carry out bank reconciliations more frequently.

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What is Bank Reconciliation Terminology?

When dealing with bank reconciliations, it’s useful to know a few key terms that will constantly be involved in the process. These include:

Deposit in Transit

Deposit in transit refers to checks and/or cash that have been documented within the company’s ledger but have yet to be displayed in the bank in which they were deposited. When a company makes a deposit at the end of a month, it won’t immediately be reflected in the bank statement. Since this is the case, it will become a reconciling item.

NSF Check

NSF stands for “not sufficient funds.” If a check is not honored by the bank in which it was deposited, then the entity that’s trying to cash the check could be charged a processing fee.

Outstanding Check

An entity may deduct a check that’s been issued as a deduction from its cash, but it may have yet to clear in the bank account. For this reason, it won’t appear on the bank statement yet and will need to be reconciled.

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How do you Reconcile a Bank Statement?

A bank statement is reconciled by comparing it to the general ledger within your business.

With each transaction, your bookkeeper, accountant, or accounting software records bank and cash transactions. The bank column displays what’s available in the bank and the cash column depicts what cash is available.

For various reasons, these two statements may not line up. Reconciling a bank statement is like performing an investigation as to where and why the statements don’t match up. In the end, every item should be accounted for and the balances should align.

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What are the Steps for Bank Reconciliation?

Bank reconciliation can be performed automatically or manually. We will soon get to why an automated solution is so beneficial, but before we do, here’s the step-by-step process for bank reconciliation:

1. Compare Deposits

Take a look at the deposits on both your bank statement and within your general ledger. Make sure that your deposit amounts notated in the debit side of your cashbook are in agreement with your credit side of the bank statement. Conduct this for the opposite situation as well where the credit side of the cash statement in the bank column matches up with the debit side of the bank statement.

2. Make Adjustments - Bank Statement

For any transactions that have yet to display in your bank statement, be sure to take them into consideration. These may include deposit in transit, bank errors, and outstanding checks, for example. While bank errors rarely do happen, it is a possibility. These errors could be those of omission or entering the wrong amount.

3. Make Adjustments - Cash Account

Within your business account, you may also have to make adjustments. If you need to add interest, do so. Or, you may have to remove any bank fees or overdraft fees. Keep in mind differences like NSF checks, bank charges, and cash account mistakes.

4. Compare Balances

Once you’ve made the necessary adjustments to both the cash account and bank statement, you can check that the account balances match. If the number isn’t the same, then reconciliation isn’t over. You must go back and check the work again.

Only once the amounts are in agreement, then you can prepare your journal entries.

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What are the Problems with Bank Reconciliations?

The whole purpose of bank reconciliations is to find errors or missing information. So, when you come across records that do no match, there is no reason to be alarmed. This is the entire reason why you’re performing this process in the first place.

It helps to know what to expect. Some problems with bank reconciliations that you could possible come into contact with include:

‍Uncleared checks:

When your business writes a check to a vendor or employee, you have no control over when they choose to clear the check. However, these residual checks will still exist as paid out amounts from your internal statements.

Within the short-term, maintain these records. If the uncleared check exists for a long time, then it may be worth contacting the payee to ensure that they received the check. It could be the case that you may have to void and reissue the check.

‍Voided checks:

From the above scenario, it may be the case that you’ll end up voiding the check. Whether you let the bank know or not, accounts could be affected. If you didn’t contact the bank to void the check, then you’ll have to document the check amount as a credit to the cash account.

To avoid double payment, you may also have to void the potential replacement check that may have been created.

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How Often Should You Reconcile Your Bank Account?

Asking how often you should reconcile your bank account is like asking how many cups of coffee you need a day. It really depends on your situation.

When you have many transactions taking place, then it’s more necessary to conduct bank reconciliations at a higher frequency. For example, many retailers or eateries will execute the process daily.

The longer you wait to reconcile your accounts, the more time and work you’ll need to spend going through the records. No matter what choice you make for your own business needs as to the frequency of your reconciliations, it’s best to remain consistent.

Additionally, if you’re bogged down or intimidated by the amount of work it takes, then consider using an automation solution to take care of the task for you and your team!

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Why Do a Bank Reconciliation?

The benefits of performing a bank reconciliation greatly outweigh any downsides. Plus, the only downsides could be the time and resources you need to perform the process. But, you can also alleviate these burdens with automation solutions and only reap the benefits of reconciliation, which include:

• Detecting fraud early enough to reverse it
• Tracking accounts payable and accounts receivable
• Clearing any errors like missed payments or omissions
• Tracking and potentially preventing bank fees or penalties
  

With software, the system can pull the records from various sources and match line items in no time. Your team benefits from freeing up this time to go work on valuable tasks that require human intervention.

While the reconciliation is running, they’ll either be notified of a clean completion or alerted to any anomalies that may exist for correction.

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Why Use Bank Reconciliation Software?

Imagine the amount of transactions your business had yesterday, last week, or last month. Now, think about a human being having to go through your bank statement and cash book to match records manually.

Not only does this sound like a big project that will require a lot of time, but you probably also know that not many people would be very excited to do this kind of repetitive work. Reconciliation software utilises robotic process automation to carry out the reconciliation like a human being would, but without the need for any manual labor.

Bank reconciliation software saves time. By saving time, you ultimately save money. Furthermore, your team can focus on more creative tasks, which often ends up resulting in increased employee satisfaction.

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Why Do Balance Sheet Reconciliations?

You’re probably aware that bank reconciliations aren’t the only reconciliations worth doing. Balance sheet reconciliations are another very important type of reconciliation to perform on a consistent basis.

Your balance sheet is an essential financial document that is involved in the closing of various accounts, including:

• Cash
• Accounts payable
• Loans and debt
• Inventory
• Prepaid expenses
• Accounts receivable
• Payroll liability
• Accrued liabilities

Balance sheet reconciliations help to maintain accurate documentation and keep up with compliance rules. You’ll always want to have an accurate understanding of your financial position because it affects your business decisions.

The advantage of balance sheet reconciliations is that you’ll always know your cash position. With the aid of automation technology, these updates happen in real-time. With software, you can get rid of the immense amount of paperwork and forget about the risk of losing important and time-sensitive information.

To streamline the process, software systems have the ability to collect data from different sources, format the data to be utilised, and execute the balance sheet reconciliation process in seconds.

With a manual or automated approach, you’ll want to complete the following list of best practices:

• List all the accounts that need to be reconciled
• Address what accounting principles are being applied
• Check that data is properly recorded
• Define your reconciliation process
• Have a responsible party to oversee the process

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What are the Best Reconciliation Tools?

There are many different reconciliation tools in the market. Once you are ready to maximise your team’s time and benefit from automated solutions, then you’ll be ready to research your options.

To reiterate, the benefits of reconciliation tools span:

• Standardisation: At whatever frequency that you choose to execute reconciliations, you’ll want the process to run in the same manner each time. This is especially complicated when you have a spread out team and different departments involved in the transactions (which is inevitable). By using reconciliation software, the process is fully automated and therefore happens the same way each time.
• Expedient and accurate: Because reconciliation software can pull data in seconds, you save a ton of time. Without the need for human intervention and manual spreadsheets, error reduction is also bound to occur.
• Audit trails: Everything that occurs within the reconciliation software will be recorded and stored so it can be reviewed at a later date, if need be. This aids in regulatory compliance and also internally to review past expenditures and forecast the future.
• Increased control: Since the process takes place within the system, stakeholders and managers can always check in on what’s happening at any point in time.

• ‍Accountability: The software systems are also designed such that different people in different roles can have their own access controls. By providing user controls, it helps to clarify everyone’s responsibilities and expectations.
  

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Features

When considering the various tools, look for one that has these features:

• Issue management
• Classification
• Transaction matching
• Reporting abilities

Each organisation will be unique in what it's looking for. To provide you with an idea of some of the top tools currently available, consider learning more about SolveXia, Bank Rec, ReconArt, or Blackline.

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What are the Steps in Financial Reconciliation?

Financial reconciliation is the process of looking at various financial records to make sure they are in line with one another. Since the general ledger contains all information, it’s often at the heart of financial reconciliations.

For public companies, financial reconciliations aren’t an option– they are mandatory. This regulated process calls for immense accuracy and timeliness by which automation solutions can provide.

The two general methods for conducting financial reconciliation are:

• Documentation review: Documentation review is the process of collecting all data from financial documents and examining the existing records. Reconciliation software automatically compares these records.

• ‍Analytics review: Used less commonly, an analytics review consists of looking at historical data and comparing what balances are expected versus the balances that exist. If there’s a big enough difference between expectations and reality, then the need to dig deeper to determine whether or not fraud or mistakes are occurring will be required.
  

Financial reconciliation allows a business to detect errors (i.e. missed payments, track incoming and outgoing funds, include bank fees in its books, determine the accuracy of financial statements, and importantly, highlight and correct fraudulent activity.

The process of financial reconciliation follows these steps:

• Comparing data across statements: Pull all required data and check your register against the bank statement.
  

• Reviewing outgoing funds: Be sure to note charges, fees for ATM transactions, and take account of checks.
  

• Checking incoming funds: Update your statements to reflect any deposits into your bank that have yet to show up on the statement.
  

• Spotting bank errors: If you notice a bank error, contact the bank to appeal it for review and rectification.

• ‍Validating records: To culminate the process, balances should match up. For any discrepancies that required editing, make note of changes and updates. Don’t worry about this step if you’re using an automation software as the system will document and store all updates you make automatically.

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Why Use Automated Reconciliations?

Throughout this step-by-step guide, we’ve continued to touch on the benefits of using an automation solution to conduct reconciliations.

Simply by outlining the pitfalls of manually performing reconciliations, it becomes very clear why using an automation tool is a best practice.

Manual reconciliations can cause many challenges and problems within a business environment. It’s not to say that it’s impossible to make work, but in more cases than not, there will be issues involved. This includes:

• Wasted time
• Lack of accountability due to the many steps and people involved
• High opportunity costs
• The need for micromanagement and check-ins
• Compliance risk
• Inability for standardisation
• Miscommunication about where the process currently stands

When you introduce a tool to automate reconciliations, your business is able to: streamline the process, prevent the need for key person dependencies, standardise the reconciliation process, save time, minimise errors, prevent and/or reduce fraud, boost employee satisfaction, provide transparency, and increase an organisation’s confidence in its financial records.

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What are Best Practices for Month End Reconciliation?

The month-end close process relies on reviewing accounting steps and reconciling accounts. Before being able to close books for that accounting period, this information must be made available for review.

The complexity of the process depends on the amount of transactions and records your team has to review. In most cases, it’ll involve data like: inventory totals, total fixed assets, balance sheets, revenue totals, and more.

Not only must you consider the immense amount of data involved, but you must also be aware of timing differences that can affect the process. People across departments or within the same department may be involved in having to complete their own tasks before the sequential step can occur.

The multiple hands involved, as well as the necessity for complete and accurate data, can add to the challenge.

To overcome these hurdles, automation tools can play a major role. With a tool, you can reconcile accounts that are at high-risk for errors daily to avoid the domino effect of mistakes from snowballing out of control.

Automation tools will carry out flux analysis (fluctuation analysis) for you so you can spot mistakes in real-time. While this variance analysis may be conducted manually, by the time you recognise the difference between actuals and expected amounts, it may be too late to resolve them.

With a tool like SolveXia, you’ll be able to complete this process without ever running the risk of missing a deadline. Automation ensures the accuracy of data so you can prevent sharing any financial statements with errors.

Lastly, by closing your books on time, you’ll never miss a tax filing. You’ll also always have a clear view on your business’ financial health and can easily pull audits for internal or external review.

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From bank reconciliations to balance sheet reconciliations, the various types of financial reconciliations are not going anywhere any time soon. In fact, with more data and transactions occurring digitally, the need for accurate and real-time updates is even more necessary.

To overcome bank reconciliation problems, you can utilise automation solutions to carry out the process for your business any time you wish to run it.

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Account reconciliation is a mandatory business process. While every business has its procedures, it follows a pretty standard process of matching transactions across ledgers and bank statements to ensure financial accuracy of accounts. Reconciliation tools help teams maximise their productivity and save time in what would otherwise be a very timely process of account reconciliation. 

But, how do you find the tool that is right for your business? It begins by understanding what account reconciliation software is and then comparing the features/pricing of the best tools on the market. This guide aims to help you cover all the bases! 

Table of Contents

1. What is Account Reconciliation Software?

2. What Features Should Be Included?

3. Making a Choice: 5 Best Reconciliation Tools

4. Benefits of Automation Reconciliation Software

5. Wrapping Up

What is Account Reconciliation Software?

Bank account reconciliation software centralises the financial close process and automates it for businesses. The software pulls data from the general ledger and compares it to bank statements and invoices to quickly reconcile accounts. Then, the software allows the preparer to electronically sign off upon completion and send it over to the approver for a final review. Once it’s approved, the software stores the data in the centralised database and provides your business with a secure audit trail. 

Most software systems allow for teams to upload supporting documents, view company policies, electronically sign off on reconciliations and leave comments, if needed. It also allows for controls to be set up so that processes are gated between employees for audit and compliance requirements. Additionally, the tool may provide users with a dashboard or a visual representation of current financial standing. 

What Features Should Be Included?

When looking for reconciliation software tools, you’ll want to make sure the following features are included:

• Reporting: A statement can be produced to highlight any records that are unmatched between the GL and bank statement. The system should also be able to compare financial reports from previous historical periods in time. 
  

• Issue management: If there’s an issue, the tool should identify the exception and be able to roll the forward problems into subsequent periods until it’s been resolved. You can also leverage a clean-up method to resolve issues manually. 
  

• Transaction matching: This is the crux of the tool. Here, the data can be pulled from various sources, compared and matched. You can establish matching rules for each account separately or create company-wide matching policies. You should also be able to define tolerance levels for a variance. 
  

• Classification: Records should be able to be classified and attributed to their type classes during the matching process. This could be performed manually or automatically. 

Making a Choice: The 5 Best Reconciliation Tools

Choosing the right reconciliation tool means considering both the upsides and the downsides. Let’s take a look at what some of the best tools on the market have to offer. 

SolveXia: 

SolveXia is a Digital Work Platform for Finance Automation. Many organisations use SolveXia to automate their account reconciliations, with a critical benefit being significant (10x) gains in team productivity. SolveXia’s enterprise-grade automation suite provides data processing, reporting, data persistence, audit trails and more. It can pull information from your general ledger and disparate data sources like banks, suppliers and more to reconcile your accounts quickly. 

SolveXia is powerful with an ability to ingest data in any format and perform complex data matching. Your team can instead spend their time analysing and investigating exceptions rather than manually preparing data for the reconciliation. The software will also provide alerts and notifications for variances and exceptions and allow for workflow for staff, to correct and adjust for exceptions. 

SolveXia runs securely on the cloud and can seamlessly integrate into your current set-up. The software can be up and running fast, in less than 30 minutes, with the ability to add new users instantaneously, and can be managed and updated without tech support or coding. If you need to run SolveXia in-house and host it internally, that is also an option, but not a necessity. Furthermore, SolveXia is uniquely extensible, with an ability to automate any data-intensive Finance task or workflow.

What sets SolveXia apart most from other tools is it is more extensible than financial close vendors because it has data transformation and enrichment capabilities. You go beyond just your GL or Bank data and produce analytics using more integrated data, for example, overlap with rebates and commission calculations or management dashboards. 

You can request a free SolveXia demo and get a customised quote to meet your business needs. 

Xero: 

Xero’s online accounting software allows you to see your cash flow in real-time through an easy-to-use interface. Some of its features include bank reconciliation, online accounting, invoicing, tracking inventory and paying bills. It also provides your team with reporting and links to all transactions. Xero can be accessed from anywhere with an internet connection and uses encryption to secure your data. 

The tool is well-made for mid to large-sized businesses. One of its most significant advantages is that it has unlimited users on every plan. In contrast, many other software tools will require a minimum amount of users and can cap maximums. Users can try Xero with a free trial and begin paying for a plan for as low as $27.50 a month. 

Blackline: 

Blackline is a cloud financial close software system that aids in supporting continuous improvement in your business. Blackline has features that cover: financial close process management, including reconciliations and accounting automation. You can set up approval and review processes to ensure that your global company’s financials are accurate across different currencies and geographies. 

Blackline has helped businesses comply with industry regulations because of its capability to hold a massive amount of data and store information in various formats. To learn more about pricing, you have to get in touch with their team. 

Bank Rec: 

Treasury Software’s product Bank Rec reconciles accounts automatically through transaction management. You can set up matching rules and allow the system to do the work so your team can focus on human analytical tasks and decision-making. Unmatched records will get rolled forward until they find their match. Some of the tool’s features include: identifying, tracking and resolving matches, recording type classification, importing and automation and high-speed matching of accounts. 

With Bank Rec, there are no set-up fees, and the product can be paid for monthly through a subscription model starting at $99.95/month or purchased entirely upfront. Either way, you can include five users. 

ReconArt: 

Like SolveXia, ReconArt is entirely web-based and can be hosted on-site, if desired. ReconArt is reconciliation software that helps businesses with bank reconciliation, credit card reconciliation, balance sheet reconciliation, financial close, accounts reconciliation, variance analysis, journal entry and intercompany reconciliation. 

You can purchase ReconArt with five minimum users starting at $1,500 a month. Unlike SolveXia, ReconArt is a software system designed for the single solution of reconciliation. SolveXia offers more automation benefits beyond reconciliation. 

Benefits of Automation Reconciliation Software

Account reconciliation software saves your team time. More than saving time, it offers many necessary businesses like providing consistency, accuracy and clarity plus it reduces compliance risk, which can ultimately save you money, prevent fraud and maintain your entire company’s reputation. 

Here’s a look at some of the significant benefits of account reconciliation software. 

• Fully automated and fast: One of the essential benefits of reconciliation software like SolveXia is that it is fully automated. This makes it easy to complete the financial close process in no time. Many finance teams spend the majority of their time inputting data, trying to understand variances and wasting time on manual and repetitive tasks. With account reconciliation software, the process is managed automatically, freeing up your team to focus on high-level work, while improving accuracy and insights while improving controls and reducing audit risks. 
  

• Uniform approach / standardised process: The reconciliation process should happen monthly. At the very least, it will take place quarterly, so it helps to standardise the process to ensure its accuracy. With account reconciliation software, the system will run reconciliations according to the automated process the same way, every time. This is particularly useful if your reconciliations take data from different systems, and there is complex and varied mapping and data cleansing involved. Reconciliation software removes automated this process, saving time and improving accuracy. 
  

• Reduce errors & enhance internal controls: Reconciliation software allows for enhanced internal controls because leaders and stakeholders can see how the process is functioning and rest assured that it’s running smoothly every time. It also prevents any actions outside the process, while alerts can also be set-up for any unusual variances or activities. By reducing manual human inputs, and with automatic mapping, you are also able to reduce errors. The software is trained to be accurate, which will prevent many potentially costly mistakes from occurring, while alerts will help identify problems as they happen in real-time. 
  

• Recorded history: The software stores all data history and reconciliations. This is useful not only for audit trails and compliance but also for historical information. You can check in on how much something costs in the past and help to forecast future expenses. This way, you can better budget and manage financials in your business. 
  

• Delegated responsibilities: With account software, you can assign roles and manage access controls. In this way, every person on your team is aware of their position and responsibilities. When reconciliation needs to go through an approval process, then the system will automatically assign the next step to the approver as required. 
  

Ultimately, any business will have to perform financial close and account reconciliations. As a public company, these processes are highly regulated, and if done incorrectly, could cost you your business. For small and large companies alike, performing accurate reconciliations can reduce fraudulent charges and help identify mistakes in financial processes. Having an up-to-date view of your business’ cash flow is directly correlated to making wise business decisions. 

All in all, using an account reconciliation tool will save your team time, allow every person to understand their role and responsibility better, and provide you with a convenient and secure location to store recorded financial history.