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Bank reconciliation is a control process between the company’s ledger records and the bank account movements. Keeping control like this will help entrepreneurs discover and correct errors in their accounting, often before they become big issues. Accurate bank reconciliation, coupled with proper cash reconciliation, is essential when having orderly management, administration and accounting and Ann Marie Puig, an entrepreneur and financial specialist from Costa Rica, explains why.

No matter the size of the business, bank reconciliation is a process that must be done as often as possible within the company.  Reconciling means making two or more things compatible; in this case, bank reconciliation is super simple and simple to check if it is right or wrong since the balance must be analyzed at the end of X day, i.e., the balance of the bank statement (digital, paper, printed, etc.) compared with the balance of the bank’s main account in question. If both balances are equal, we can say that the bank is Reconciled.

First, the finances of any company have a relevant role because they aim to optimize and achieve the multiplication of money.  Says Puig, “It’s key that every organization, large or small, has timely, useful, clear, relevant, and concise information to make the best decisions.  Based on this, the future can be forecasted and the company can be viewed, so it takes a lot of attention and ability to do so.”

That is why financial analysis is a fundamental part of an organization’s strategic planning process, which is an ongoing process for the efficient allocation of both material, human and above all financial resources that enable the achievement of strategic objectives and goals.  Therefore, all information and data concerning the organization come from all its day-to-day operations, whether sales, purchases, services, but all these operations involve a series of transactions in which the money is involved.

Bank reconciliation is inevitable.  Not out of accounting whim that only experts can see, but for several reasons, including avoiding unpleasant mistakes and surprises, verifying transactions and expense projection.  For example, if a company has $100,000 in the bank but the Own Checks report indicates that next week $400,000 of checks will expire, the business owner needs to know where the $300,000 is going to come from.

First, in the normal cycle of operations in a company, financial transactions are constantly carried out in its day-to-day life.  For this purpose, it uses the bank as a financial ally, where the company has full confidence to deposit and manage its money coffers.  All organizations require the management of bank accounts to facilitate their business operations, so they make contracts with banking institutions that allow them to manage their financial resources.  “Opening a bank account allows the company, in addition to managing its finances, to have source documents to make its accounting records,” explains Puig, “and thus facilitate the control of operations.  However, these financial transactions involved in the company’s operations are reflected in reports called bank statements, either printed by the bank or extracted from the banking website on any day of the month.”

It should be noted that, in accounting, the bank balances both at the beginning and end of the monthly period reflected in the bank statements and which obviously must match the bank book of the company.  This is the amount of the amount reflected in the nominal ledger account called Bank.  Your entries must be posted in both the journal and the company ledger. That, in turn, at the end of the accounting cycle in the preparation of the financial statements, goes as a current asset reflected in the statement of financial position, according to international financial reporting standards.

This will make it much easier for you to control and record your finances, with which you can make better business decisions.  It can be said that a good bank reconciliation added to a correct reconciliation of the company’s bank books, is essential when it comes to wanting to have good management both administrative and accounting and thus manage more efficiently the finances of the company.  

About Ann Marie Puig

Ann Marie Puig has been a distinguished Consultant, Assistant Controller, Accounting Manager, Director of Accounting and Finance and Chief Financial Officer for almost 20 years.  She is bilingual in Spanish and English and has a reputation for accurate, clear and concise record management in month-end closings, accruals, reconciliations, AP, AR and JE, as well as superior human resource skills.   She is extremely knowledgeable in current technology, eCommerce and a variety of Industries.