Bank reconciliation is a common term that goes around people who are involved in accounting. It is a comparison between the accounting records of a company with regards to its bank account and the changes made in the accounting records by the bank itself. A bank reconciliation statement should be prepared periodically to check if bank-related transactions are recorded right in the cash book’s bank column and in the books the banks maintain. It is a must for companies to prepare a BRS, however, the process is long and tedious.
Purpose of the bank reconciliation
When involved in the BRS process, it is important to scan the bank statement and check if the company account or the personal account has the same data. UPI transactions can be forgotten in most cases which might create a difference in the bank statement. These glitches can be figured out if a BRS is done. Preparing a BRS makes data transparent and clear which in turn results in an accurate financial statement.
The importance of bank reconciliation
- Ensures accuracy
When preparing a BRS the additions and deductions mentioned in the bank statement are reconciled with the entries made in the company’s ledger. Cross-checking the statements ensures that the cash mentioned in the company’s balance sheet is accurate.
- Discovers errors or omissions
An omission or an error made in a company’s ledger cash account will affect the other general ledger accounts. Mistakes can be in the form of an addition or a subtraction made, recording a double payment, or missing out on a payment. The BRS detects these kinds of errors and helps a company from issuing an incorrect balance sheet and an income statement.
- Improves internal control
Getting a BRS done by a third party instead of an employee handling receipts and payments minimizes dishonest acts and improves internal control.
- Easy tracking
The payment that is due for one month may not appear in your bank statement until the next month even if the payment is received at the end of the month. This is not the case when it comes to BRS, a bank reconciliation statement helps in tracking individual invoices until the payment is made against them. Hence, the bills pending can be easily tracked.
- Get rid of frauds and cash manipulations
Having a third party perform your bank reconciliations can help you get rid of fraudulent activities.
An accurate BRS = An accurate financial statement
Get your bank reconciliation done by Park Intelli.