Is bank reconciliation an essential accounting task?

Bank reconciliation is not compulsory for companies, but it is highly recommended in order to have real information on their financial status and to ensure that the data recorded in the books and registers coincide with the movements that have occurred in the bank accounts.

It is a simple operation to carry out on a regular basis and has many advantages for all types of businesses.

What is bank reconciliation?

Keeping scrupulous financial control of the company is important to know at all times what resources the company has at its disposal, and if it is foreseeable that any liquidity problems may arise.

Bank reconciliation is not compulsory in the company’s accounting, but it is highly advisable. It is a control process that compares the accounting entries with the movements reflected in the bank account.

What we are looking for is to make sure that the inflows and outflows of money that appear in the company’s books coincide with the movements actually produced in the bank accounts.

What is it for?

Detecting errors

As we have just pointed out, one of its first purposes is to detect possible discrepancies between the information reflected in the accounts and the bank movements, in order to be able to correct them as soon as possible.

Greater control of performance

Regularly reviewing the accounts and comparing them with the information in the main books helps to get a better idea of the financial situation of the business, which will facilitate decision-making.

How does bank reconciliation benefit your SME?

Bank reconciliation is part of the internal audits that we can carry out in our business to keep up to date with income and expenses. When we carry it out correctly, we obtain the following benefits:

Improved control of resources

In order to grow, companies need to invest, and they are usually financed by their own financial resources. In this sense, reconciliation is useful to know how much liquidity is available and to make decisions based on this.

Greater control of payments

It is not unusual in any business for a supplier to claim payment of invoices that the company thought had already been paid. Such problems arise because of human error.

By comparing the bank statement with the movements in the general ledger, we can check whether the payment has actually been made or whether, on the contrary, it was noted down but not transferred.

Need a Consultant?

Increased control of collections

With receipts, something similar happens to what we have discussed for payments. It is easy for an invoice to be reported as paid in the accounts, only to discover later that it was not paid at the time.

Again, by comparing the accounting entries with the bank statement, we can easily and quickly check whether there are outstanding invoices. This is important in order to be able to claim payment as soon as possible and thus avoid liquidity problems.

Increased inspection preparedness

No company is exempt from being inspected by the tax authorities. In the event of such an inspection, the work of the technicians will be much easier if there is a reconciliation document.

By comparing the accounts with the actual bank movements, we ensure that everything is really in order and that we will pass the inspection with flying colours.

Types of the bank reconciliation

Individual or arithmetic bank reconciliation

It involves a regular comparison of bank movements in order to detect possible differences between the balance recorded in the accounting books and the bank balance. As it is carried out easily and quickly, this is the method most companies use.

If any accounting mismatch is detected, it is corrected and the balance in the bank book is updated, thus ensuring that all data is correctly squared.

Joint bank or accounting reconciliation

What is done is to draw up a document that collects all the information relating to those entries that do not add up and then create correction policies.

Depending on who is responsible for the errors (the company or the bank), the bank will have to take care of the necessary corrections so that all the data is in order.

As we said at the beginning, bank reconciliation is not mandatory, but it can be a great help in closing each quarter correctly and making sure that all the data match.

It is also useful to keep better control of the business management, detecting possible errors or mistakes and revising them as soon as possible.

If you have any questions on this subject, please contact our tax advisors in Barcelona.

    Fill out the form to contact us!