Bank reconciliation is probably a word we often hear. Many people even use this word in a sentence. However, not everyone understands what is meant by bank reconciliation.
This time we will explain in full what is meant by bank reconciliation and the components in it. The following is a complete explanation.
Contents
Meaning of Bank Reconciliation
For those of you who are used to working in the accounting field, you will certainly understand the term bank reconciliation.
Staff who work in the financial sector should also understand bank reconciliation theory. In general, a bank reconciliation is a collection of records of cash differences.
Bank reconciliation can be in the form of differences in records between customer cash and bank cash. If there is a difference in the recording between the customer’s cash and the bank’s cash because it has not been recorded by the bank, the bank must adjust the records.
However, if there is a difference between customer cash and bank cash due to other factors, then both parties must adjust. Recording these differences is called a bank reconciliation.
Several people also explained what is meant by bank reconciliation. Some people think that bank reconciliation is a verification that is used to match bank data with customer data.
Main Objectives of Bank Reconciliation
Bank reconciliations are made for a specific purpose. The main purpose of making a bank reconciliation is to match bank records with company records.
In this way, a match or discrepancy will be found between the company’s cash report and the bank report.
With bank reconciliation, there is verification of the company’s profit report. That way, the company’s financial records will be neater for a certain period of time.
With bank reconciliation, the company’s financial records regarding cash and non-cash receipts can be well controlled.
Components in Bank Reconciliation
There are several important components in bank reconciliation. All components of bank reconciliation must be carried out properly.
There are three important components in bank reconciliation that must be present and must not be missed.
If one of the main components of bank reconciliation is not carried out, the report is considered invalid.
In fact, the bank reconciliation report is considered to have never occurred if all components are incomplete. The following are several components of bank reconciliation.
1. Deposit In Transit Component
The first component in a bank reconciliation is deposit in transit. Deposit in transit is the amount of cash received by a company. However, the money has not been recorded in the bank.
Generally, this phenomenon occurs when payments come in at the end of the month. In this way, financial recording is not yet included in bank transactions. So the money is still considered company money.
Deposits in transit can also occur if the bank has made a deposit but the company has not recorded it. Therefore, it is necessary to carry out bank reconciliation.
2. Component Outstanding Check
The next component in bank reconciliation is checking outstanding. He said checking outstanding is also known as checking outstanding checks. Usually the company has issued several checks but they have not been cashed.
Because the check that has been made by the company has not been cashed, there will definitely be differences in reports between the bank and the company.
Therefore, it is necessary to carry out a bank reconciliation to adjust the financial records between the bank and the company.
Generally, so that there is no need for outstanding checks, the company should report every check that goes out to the bank directly. The aim is of course so that the reports between the bank and the company can be in accordance.
3. Non Sufficient Fund Check Component
This third component is usually also known as a blank check. A blank check will of course not be recorded on the bank cash report because the company has insufficient funds to cash the check.
Cases of bad checks can still be cashed if the company is willing to have the funds deducted by the bank. But the company will be charged a fee for cashing the check.
Bank Reconciliation Procedures
Bank reconciliation has its own procedures. In the implementation process, there are several procedures that must be carried out, including:
- Comparison of bank records with company cash balances
At this stage, the company balance must be matched with the bank. The way to make a comparison is to look at your bank statement every month.
At this stage, the company’s financial staff must analyze the company’s financial reports and bank records.
Analysis is carried out to see whether there are differences between the company’s financial records and the bank’s.
Generally what often happens is a mismatch. Discrepancies can occur due to company errors in recording or, conversely, the bank doing the wrong recording.
- Copying bank records
The process of recording company finances at the bank is carried out automatically through digital records.
Recording at the bank will be in accordance with the bank statement obtained by the company.
The company must make a comparison by copying notes or statements from the bank in a separate file.
If there are differences in reports, the two records between the company’s cash report and the bank statement must be reconciled.
The way to do this is to compare the two reports. This procedure must be in place when carrying out bank reconciliation later.
- Tracking on-process transactions
In general, there is rarely a match between company and bank reports. This is because there are several transactions that are in process.
Therefore, the company must check with related parties regarding transactions that have not been recorded in the bank report.
- Making worksheets for calculating differences
The next step is that the company’s finance team must calculate the difference. The difference between bank financial statements and company cash must be made neatly, clearly and in detail on a special worksheet.
- Analysis and double checking
After that, the company must carry out analysis and re-check. Normally, if there is a difference of even 1,000,000, it means it could be due to an error when inputting the data. However, if it is more, adjustments need to be made.
Benefits of Bank Reconciliation
Bank reconciliation has its own benefits. In general, bank reconciliation has the benefit of finding out the causes of differences between company cash reports and bank statements.
Specifically, there are several benefits from making bank reconciliations, namely as follows.
- In order to find out the difference between the company balance and the bank.
- To find the causes of differences or discrepancies in company and bank balances.
- As a tool to detect accounting fraud.
- Tools for managing and monitoring company cash.
- Material for checking if there is a recording error by the company’s finances
That was an explanation of what is meant by bank reconciliation, the procedures and components of bank reconciliation.
Hopefully this is useful for those of you who are studying finance. You can also apply it to company reports if you currently work as an accountant.
You can also take advantage of several applications used to manage company finances.
This way, the company’s financial reports will be neater and make it easier to carry out bank reconciliations. Some of these applications have been used by large, medium and small scale companies.