The bank statement tracks all the information of in and out the movement of money within the company accounts, while a general ledger contains a record of its recent transactions.
Theoretically, these two fragments state similar information and result in the same cash balances. But, practically, it is not always the case. Along with these two, businesses of any level have to perform frequent reviews, known as bank reconciliations, to assure the balance of the former mentioned documents.
What Exactly Is Bank Reconciliation?
A bank reconciliation is a procedure of matching information related to cash accounts from accounting reports to bank statements’ corresponding information. With the help of reconciliation, businesses can manage their cash accounts and maintain the needed balance in simpler words.
The financial statements such as the general ledger indicate how much money a business must-have. In contrast, the bank statements show how much money a business does have, as it is a real image of all the finished transactions during a specific time that affected the company’s accounts.
These two can’t maintain balance along with the extreme flow of multiple payments and deposits, interests, bank fees to account for, and other additional transactions. To maintain the correct balance of money, we need to understand the two terms, namely ledger and bank statement, in the right way.
Bank Reconciliation Statement
Bank reconciliation is the process of verifying and maintaining cash activities. In contrast, the bank reconciliation statement is a specific referral document created by the business to preserve its own company’s cash movements. This statement is necessary to record the company’s profits and expenses.
Bank reconciliation statements are useful for the partners and finances of the businesses to calculate the funding procedure. These statements are also helpful during general body audits. It will help if this bank reconciliation statement is protected safely and the files generated by the business and held onto the essential records. If these bank reconciliation statements cannot behold safely, it will make cash maintenance a hazardous activity.
Technically, accountants or bookkeepers will prepare the bank reconciliation statement either by hand or with the use of incorporating accounting software. Meanwhile, other businesses outsource the work to third party providers to rearrange their account records for accurate results within the given time. This outsourcing of accounts is common for the large scale companies, which contain multiple transactions to manage.
Why Is A Bank Reconciliation Important?
Companies must generate bank reconciliation statements regularly to identify specific issues before they grow into big problems. Due to the absence of regular bank reconciliations, companies will face complications such as check bounce and failed electronic payments in the short-term.
These short-term issues lead to financial overstretched problems soon. However, all these problems result in the affected outcomes in the form of decreased cash flow, which can minimize the business’s sustainability and performance.
Periodic bank reconciliations help maintain the correct cash balance and records that are necessary for any business. Along with this, regular bank reconciliations minimizes fraud and cash manipulations to regulate damage to the company.
Usually, business accounts do not provide similar liberal security like that of personal accounts. Because of this, banks do not have to cover fraud or mistakes in the account. Due to this, maintaining a bank reconciliation is an essential part of the company’s safeguarding techniques that regulates the loss of money.
Advantages Of Bank Reconciliation Statement
A business will have the following benefits as a result of a bank reconciliation statement:
- More excellent controllability towards the amount of cash present in hand.
- An improved deduction in bounced checks and fraud cash losses improves trust over the brand among partners and suppliers.
- Accurate information about the customer’s or supplier’s failed payments, which results in better modifications for the future.
- Neater accounts and books, enabling dignity to attract investors.
- Quicker accessibility and performance to enhance the decision-making process.
A bank reconciliation statement is crucial for the proper maintenance of cash and records of a business. It is different from that of the general ledger and constitutes useful information about the company in and out cash movements. Businesses can enhance their productivity and supply to their customers by improving payment transactions with a bank reconciliation statement.