Centralizing the reconciliation workflow and supporting documentation, as well as using templates that forced segregation of duties and built-in policies and procedures, helps avoid administrative errors and allows accounting teams to detect fraud early and frequently. In general, matching bank statements can help you identify unusual transactions that could be caused by fraud or accounting errors. This process can be done formally or informally. The bank reconciliation process usually begins at the end of the period and after receipt of bank statements. Accountants document transactions recorded in the general ledger by matching this data with account statements collected by the bank. Last but not least, when business owners decide to “clean” the books, many explanations for transactions can be forgotten due to the lag between actual transactions and the votes that take place (for example, Is this bank withdrawal an expense? Or was it a shareholder refund? – These are two completely different things with significant and different implications). If you have an automated, integrated, centralized bank reconciliation process, discrepancies between your books and the bank can be discovered more often than at the end of the month. This means that once fraud occurs, the team can take corrective action, and this tight process will make those thinking about fraud think. Bank reconciliations are usually performed at the end of the month after transactions have already been recorded. If an employee attempts to commit fraud at the beginning of the month, accountants who reconcile statement transactions will not recognize the discrepancy until a month later, sometimes longer. This characteristic requires segregation of duties, which means that the person performing the bank reconciliations should not also have access to the transaction log in the accounting records or to the processing of cash payments or receipts.
Any discrepancies between the accounting records and the bank statements must be adjusted by a person other than the person making the reconciliations. Most importantly, matching your bank statements will help you detect fraud before it`s too late. It`s important to keep in mind that under federal law, consumers have more protections for their bank accounts than businesses. Therefore, it is especially important for companies to quickly detect fraudulent or suspicious activity – they cannot always rely on the bank to cover up fraud or errors on their account. First of all, for those new to voting, matching a bank account means identifying and explaining the differences between the entries in your accounting system and the corresponding transactions listed on your bank or credit card statement. A bank reconciliation is used to compare your records with those of your bank to determine if there are any differences between these two records for your cash transactions. The final balance of your version of the cash register records is called the accounting balance, while the bank version is called the bank balance. It is extremely common that there are differences between the two balances that you should find and adjust in your own folders. After all, if you were to ignore these differences, there would be significant discrepancies between the amount of money you think you have and the amount the bank says you actually have in an account. The result could be a short bank account, rejected checks, and overdraft fees. In some cases, the bank may even choose to close your bank account. For example, if deposits have not been accurately recorded or not at all, income may be undervalued.
This omission affects performance measures (you may be wondering why revenues are lower than expected for a given period) and tax returns (you would probably pay less tax because income is lower). If and if you are corrected at a later date, your tax return will need to be amended, which would potentially result in interest and/or penalties. If the omission is substantial, the interest/penalties may be substantial, but worse, the tax authorities can contact you, and who knows where it may lead. Let`s not even go there – just make your banking recommendations! A bank recommendation should provide you with convenience regarding your general ledger balance (accounting system) and how it relates to the final balance of your bank or credit card statement. You should be able to understand why the accounting system for bank and credit card balances is different from your actual bank and credit card balances. If you don`t, you should investigate or hire someone to help you. Given the large volume of transactions affecting a bank account, it is necessary to have an internal control system in place to ensure that all cash transactions are properly recorded in the bank account as well as in the company`s general ledger. Bank reconciliation is the internal financial report that explains and documents any differences that may exist between a current account balance, as reflected in a company`s bank records (bank balances), and the company`s accounting records (business balance). With traditional spreadsheet-based processes, account reconciliations usually take place after the end of the period, whether on a monthly, quarterly, or sometimes annual basis.
It is long after that a large part of the transactions have already taken place, the company has continued, and the front office is already looking forward to the time ahead. .