Managing Bank Reconciliations with Deskera ERP

Bank Reconciliation Mar 07, 2014

Bank reconciliation is a process that explains the difference between the bank balance shown in an organization’s bank statement, as supplied by the bank, and the corresponding amount shown in the organization’s own accounting records at a particular point in time. A company’s general ledger account Cash contains a record of the transactions (checks written, receipts from customers, etc.) that involve its checking account. The bank also creates a record of the company’s checking account when it processes the company’s checks, deposits, service charges, and other items. Soon after each month ends the bank usually mails a bank statement to the company. The bank statement lists the activity in the bank account during the recent month as well as the balance in the bank account. When the company receives its bank statement, the company should verify that the amounts on the bank statement are consistent or compatible with the amounts in the company’s Cash account in its general ledger and vice versa. This process of confirming the amounts is referred to as reconciling the bank statement, bank statement reconciliation, bank reconciliation, or doing a “bank rec.” The benefit of reconciling the bank statement knows that the amount of Cash reported by the company (company’s books) is consistent with the amount of cash shown in the bank’s records.

Bank Reconciliation Process

Step 1. Adjusting the Balance per Bank

We will demonstrate the bank reconciliation process in several steps. The first step is to adjust the balance on the bank statement to the true, adjusted, or corrected balance. The items necessary for this step are listed in the following schedule:

Step 2. Adjusting the Balance per Books

The second step of the bank reconciliation is to adjust the balance in the company’s Cash account so that it is the true, adjusted, or corrected balance. Examples of the items involved are shown in the following schedule:

Step 3. Comparing the Adjusted Balances

After adjusting the balance per bank (Step 1) and after adjusting the balance per books (Step 2), the two adjusted amounts should be equal. If they are not equal, you must repeat the process until the balances are identical. The balances should be the true, correct amount of cash as of the date of the bank reconciliation.

Step 4. Preparing Journal Entries

Journal entries must be prepared for the adjustments to the balance per books (Step 2). Adjustments to increase the cash balance will require a journal entry that debits Cash and credits another account. Adjustments to decrease the cash balance will require a credit to Cash and a debit to another account.

Benefits of Bank Reconciliation

  • Detects Fraud
  • Prevents Overdraft
  • Identifies bank errors
  • Improves Collection Actions

Managing Bank Reconciliation Statements through Deskera ERP

This feature allows you to compare the accounting records against those shown on your bank statement through the ‘Bank Reconciliation’ functionality. It allows you to easily identify discrepancies between these records and their probable causes.

Key Features of using Bank Reconciliation through Deskera ERP

Deskera ERP provides following features for managing the Bank Reconciliation Statements:

  • You can specify bank account details and the opening and ending balance as per your bank statement records.
  • It helps by showing you all the transactions (such as checks and payment transactions, deposits and other credit transactions) related to the selected account.
  • You can also compare these transactions with your bank statement.
  • You can also select all the transactions present in the statement and monitor the difference in ending balance and clearing balance.
  • It also tells you about the error present in the transaction. The difference should ideally be zero. If not, it indicates an unsettled or missing transaction and needs further analysis.

Advantages of using Bank Reconciliation Statements through Deskera ERP

Error Detection

Deskera Bank Reconciliation helps you spot accounting errors common to any business. These mistakes can include addition and subtraction errors, double payments, lost checks and missed payments. You might have recorded an invoice as paid in your general ledger, but bank reconciliation might reveal you forgot to write the check. At times, your bank might make an error in your favor. You will be liable for returning that money, even if you’ve already spent it.

Fee and Interest Tracking

Each month, your bank adds any fees, penalties or interest payments it has applied to your account. You might have overdraft fees, go under your account balance requirement or earn interest on your checking account balance. If you order checks or stop payment on a check, you might incur a fee, depending on the features of your account. Monthly bank reconciliation lets you add or subtract these amounts in your general ledger.

Fraud Detection

You might not be able to stop an employee from stealing your money once, but you might be able to prevent a second theft. Deskera Bank reconciliations help you spot ongoing fraudulent transactions. Have an independent party perform your reconciliations to prevent an accounting employee from continuing to falsify your general ledger and reconciliations.

Receivables Tracking

Payments due one month might not appear on your bank statement until the next month if you receive the payments near the end of the month. In other instances, you might accidentally leave one check off a deposit slip if you are filling out a slip with many entries. As you perform a review of last month’s receivables, you might not see a payment that was made and contact a customer to ask where the payment is. Deskera Bank reconciliations confirm all of your receipts, helping you avoid awkward situations or identifying the entry for a receipt you didn’t deposit.

Transaction Status Updates

A bank reconciliation statement might reveal that a check you wrote months ago still hasn’t been cashed. Un-cashed checks can cause you to believe you have more money to spend than you do. Deskera Bank reconciliations allow you to spot checks that haven’t been paid and contact the payee to urge her to cash the check. Hence, Bank reconciliations are an important accounting procedure, performed by companies of all sizes, to match the cash balance of the bank with the balance found on the company’s financial records and Managing Reconciliations through Deskera ERP can detect and prevent intentional fraud, along with errors by bank tellers, accountants, employees and management. Although bank reconciliation is typically a month-end procedure but through Deskera ERP, companies can perform it daily.


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