Bank reconciliation, one of the terms that appears quite often in accounting activities. Usually companies that do a lot of this activity.
Generally, every company keeps cash in the company only in small amounts. The rest is entrusted to their bank accounts.
By saving in a bank, they hope to be able to control the company’s total cash properly and safely.
Even so, the company still has to have its own records regarding financial flows. This then became one of the reasons for bank reconciliation.
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This action is needed by the company to ensure the accuracy of the financial statements for each period, which are usually made using financial report applications.
Definition of Bank Reconciliation
Bank reconciliation or what is known in English as bank reconciliation is an act of verification to match balances or company records with banking reports.
But it can also be interpreted as a note containing information on cash differences. For example, the difference between the bank’s records and the customer’s records.
When the discrepancy is caused by a financial transaction that was missed and not recorded by the bank, it means that the customer’s record is correct.
Meanwhile, if the discrepancy occurs due to records for several other financial items, the records of both parties must be matched.
Bank reconciliation must be carried out and completed within a certain period of time.
When you make regular reconciliations, you can increase the accuracy of the company’s financial statements.
The possibility of manipulation of financial statements can be minimized because they can be immediately identified or found.
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Purpose of Bank Reconciliation
As it is understood, the primary purpose of a bank reconciliation is to match the company’s financial records with those of the bank.
In addition to matching, this activity also aims to find differences in cash from both parties, to then trace the causes.
In addition to the two objectives above, there are several other bank reconciliation objectives, such as:
- Examine cash suitability to determine whether it has been prepared correctly and thoroughly
- Check the overall use of funds, to ensure the amount of funds used is appropriate and does not exceed the specified limit
- Ensure there are no errors in the cash recording process. If there is an error, it can be corrected immediately
- Monitor the management of funds or finances, so that fraud or fraud does not occur in the allocation
Bank Reconciliation Components
To be called a bank reconciliation, it must fulfill its constituent components.
The components of bank reconciliation include:
1. Deposits in Process (Deposit In Transit)
Deposits in transit being the first component. This means that cash has been received by the company, but the receipt information has not been obtained by the bank.
When this occurs at the end of the month, it is not included in the deposit to the bank. Because the information has not been received by the bank so it has not been recorded.
These will be the items in the reconciliation.
Deposits in transit occur when data is received late, the company’s deposit to the bank is delayed, or the company has not actually made a deposit.
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2. Outstanding Checks
This second component is a check that has been cashed by the company, but has not been cashed.
As long as the transaction has not been completed, it will not appear on the bank’s records.
3. Blank Check (Non Sufficient Fund Check)
This last component is usually a check received by the bank from the company, but cannot be cashed. Usually due to insufficient company funds.
In this condition, the bank will still issue a debit note worth the check that cannot be cashed, which is considered dishonest or dishonorable.
The balance in the company’s account will automatically be reduced. In the process, the company will be charged a processing fee for issuing the check.
Causes of Bank Reconciliation
There are several things that can cause bank reconciliation, apart from the three components above, including:
1. Bank Income and Expenses
Bank charges can also be a cause of reconciliation.
Expenses can be in the form of administration fees, check writing, services and other costs that are included in the bank’s burden.
Bank interest income that has not been included in the company’s records is also part of the bank’s expenses.
2. Notes Receivable
Notes receivable are client debts based on an agreement as well as collateral as a binder during the loan period.
Because loan funds are sent through a bank, this transaction can also be a cause of reconciliation.
Generally, notes receivable are carried out with an agreement period of no more than one year.
3. Bank Credit
Reconciliation can also be caused by bank credit. The credit in question can be in the form of deposits or billing from the bank.
This transaction can only be identified when the customer obtains a checking account.
4. Error in Recording
The next cause of reconciliation is an error when recording. Both the fault of the bank and the company.
This is natural and often happens, which is why reconciliation is needed to examine and identify errors so that corrections and adjustments can be made.
Companies can take advantage of online bookkeeping applications to minimize the occurrence of these errors.
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Procedure for Implementing Bank Reconciliation
Referring to the book written by Faiz Zamzami, et al regarding public sector financial audits, there are four general procedures for bank reconciliation.
The following include:
- Conducting searches on bank balances via checking accounts and confirming the bank’s answers regarding cash recording
- Trace the balance sheet date on the reconciliation to check conformity
- Create reconciliation worksheets, then match them and find the differences. After that you can calculate the difference to match
- Re-check the company’s cash records
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Forms of Bank Reconciliation
In making a reconciliation, you can prepare a bank reconciliation journal in a choice of the following forms:
1. Vertical Form or Report Form
This form of report is known as staffle. Because all the information in it is arranged in a multilevel form.
If at the top it informs balance reconciliation records based on company records, the bottom part is based on a bank statement, or it could be the other way around.
2. Account Form/Skontro
The second form is skontro, where information is arranged side by side or horizontally.
If the right column is for reconciliation of bank records, then the left column is for reconciliation of company records. You can also arrange it the other way around.
3. Reconciliation of 4 Columns
There are actually five columns in this reconciliation. It’s just that, of the five columns, there are only 4 nominal mutation columns.
Therefore it is called a 4 column reconciliation.
4. Reconciliation of 8 Columns
There are actually 9 columns in this reconciliation form, but you will only find 8 columns for nominal mutations. That’s why it’s called the 8-column reconciliation.
Through the explanation above, we can conclude that a bank reconciliation is a report that contains a comparison of the cash records of the bank and the company.
Accuracy and thoroughness are required in preparing this reconciliation report. Of course so that no company’s financial transactions are missed and proper recording can be carried out.
When you have found differences as well as differences from the two cash records, you can immediately make corrections and adjustments.
This is done so that the difference between bank and company records does not get bigger because the cause is not known and it is not adjusted.
By carrying out a reconciliation, it is hoped that it can balance or equate cash records carried out by the bank and also the company.