Efficient bank reconciliations are crucial to maintaining accurate financial records and ensuring the integrity of your business’s accounts.
It can also be a process accounting teams dread.
If you’re used to doing the process manually, you know how time-consuming and error prone bank reconciliations can be. But with the right tools, you can turn it into an automated process that you can quickly check off your to-do list.
This post will walk through a streamlined approach to reconciliations, highlighting how you can simplify the process with automated bank reconciliation solutions.
The importance of monthly bank reconciliations
Monthly bank reconciliations ensure that the financial transactions recorded in your books match the transactions reflected in your bank statement. Here are key reasons why this process is critical:
- Reconciliations help identify discrepancies between your records and the bank’s, which can be caused by double entries, missed transactions, or incorrectly entered amounts. It also helps detect fraudulent activities or unauthorized transactions early, so you can address issues before they escalate.
- Regular reconciliations ensure that all transactions are properly recorded, including deposits, withdrawals, fees, and interest. This accuracy is vital for financial reporting.
- Reconciliations help you track your actual cash position. This allows for better cash flow management, ensuring that there are no surprises like overdrafts or insufficient funds when payments are due.
- Accurate records from bank reconciliations simplify tax filing, as they ensure that income and expenses are properly recorded and categorized. This can help minimize tax errors and penalties, making audits less stressful.
The key to reconciliations: Ensure the GL balance matches your bank balance
Monthly bank reconciliations begin with verifying that the opening balance on your bank statement matches the opening balance on your general ledger (GL). If it does, you’re golden. You can move onto the next step of your month-end close process.
If the balances don’t match, on the other hand, you need to figure out why. That’s where the bulk of the reconciliation process lies. Through transaction matching and reporting, you can uncover why the balances don’t match, resolve discrepancies, and ensure you recorded all transactions correctly.
Let's go over the steps you can take to identify why your balances don’t match.
1. Match transactions
You’ve likely done the manual matching process many times, comparing the bank statement with the GL one transaction at a time and ensuring each is reflected in both records. This includes:
- Deposits: These should be recorded on both the bank statement and the ledger as increases in cash.
- Checks (cleared vs. outstanding): Cleared checks are those that have been processed by the bank and should be matched with your GL. Outstanding checks, on the other hand, have been recorded but not yet processed by the bank, so they won’t appear on the bank statement.
- Debits and credits: These include bank fees, direct debits, withdrawals, and payments that affect your bank balance and should align with your ledger.
Going through this process manually is typically time-consuming and prone to errors due to the sheer volume of transactions a business has each month. However, accounting software solutions offer bank reconciliation automation tools that streamline this process (more on this below).
2. Identify discrepancies
Even with automated matching, discrepancies can occur for many reasons. This could include deposits that have already been recorded in your GL but have not been processed by the bank, incorrect or duplicate entries, timing issues, and other errors.
To find the source of these discrepancies, try these steps:
- Investigate unmatched transactions: Look for missing or delayed transactions that may explain the difference between your bank statement and GL.
- Check for data entry errors: Verify that all amounts, dates, and transaction types were entered correctly.
- Look for unauthorized or fraudulent transactions: If you can’t trace a discrepancy back to timing issues or errors, there’s a chance it could be an unauthorized transaction.
3. Adjust entries
Once you’ve identified discrepancies, you may need to adjust the GL. Here’s how to approach adjusting entries:
- Correct data entry errors: If you find an error like an incorrectly entered amount, make the necessary journal entries to adjust the books.
- Record missing transactions: If a transaction is missing from your internal records (but it’s reflected in your bank statement), record it as a new entry.
- Account for bank fees: Sometimes bank fees or interest are not recorded until reconciliation. Add these to the GL to ensure accurate financial reporting.
- Record outstanding checks and deposits: Record any outstanding checks or deposits as reconciling items, ensuring these transactions are noted for future periods when they clear the bank.
4. Compare closing balances
After making all necessary adjustments, the final step in the reconciliation process is to verify that the closing balance in your GL matches the balance on the bank statement. This comparison confirms that all transactions have been accounted for and that your financial records accurately reflect the business’s cash position.
Once the closing balances align, the reconciliation process is complete, and your financial records are verified as accurate. This accuracy is key for generating reliable financial reports and managing cash flow effectively.
How to automate bank reconciliations in NetSuite
As we mentioned earlier, automating some of the steps in the monthly bank reconciliation process can save you a lot of time and ensure greater accuracy. Your automation options will depend on the software you use.
If you use NetSuite as your enterprise resource planning (ERP) platform, you can leverage embedded tools like NetCash to automate transaction creation and matching.
Let’s take a closer look at how you can benefit from bank reconciliation automation depending on how you record payments in NetSuite.
Automated transaction creation
Small- to medium-sized businesses often create cash transactions in NetSuite based on the information from bank statements, meaning the accounting transactions trail the bank transactions.
If this is the case for your business, you can benefit from automated transaction creation, which removes the manual step of creating each transaction. You can also leverage automation through tools like NetCash to apply the cash received in your bank to the corresponding open bills and invoices in NetSuite.
Auto-matching rules
Large businesses with a more complex tech stack often use integrated software to record transactions in NetSuite.
For example, you may use payment processing software like Stripe, which writes entries for the receipt of cash onto your books. Or you may use a solution like Bill.com, which records every time you pull cash from your bank account to pay bills and marks those bills as paid in NetSuite.
With this type of NetSuite setup, where transactions are recorded before you have the details from the bank, you can benefit from automated transaction matching.
Embedded software like NetCash can match transactions between the bank statement and the GL, using algorithms to find likely matches based on amounts and transaction dates. This removes the manual process of comparing your bank statement to your GL to ensure all transactions match.
Regardless of which automation feature you use, streamlining your bank reconciliation process brings greater efficiency and time savings to your accounting team. By taking care of the time-consuming manual parts of the process, automation software gives you time back while reducing the stress of the month-end close.
Automate bank reconciliations with NetCash
Effective bank reconciliations are essential for maintaining accurate and reliable financial records. By leveraging the power of automation, you can simplify the reconciliation process, reduce errors, and save valuable time.
NetCash provides the bank and cash management solutions you need to streamline your bank reconciliations in NetSuite, including:
- Real-time, automated bank imports
- A unified and accurate view of your cash position within connected banks
- Tools to create transactions, connect bank activity to GL activity, and automate recurring transactions or transfers
- Prebuilt, audit-ready reports, like proof of cash and ending balance reconciliation
Want to see how NetCash simplifies cash management and reconciliation? Take a self-guided product tour or get in touch with our team by requesting a personalized demo.
