Account Reconciliation Software
What is Reconciliation in Finance and Bank Reconciliation Software?
Before defining bank reconciliation software, let’s first understand what account reconciliation in finance means. In a financial institution, the accounting team is responsible for comparing the financial records of a company between the internal and external statements. This is to verify if any differences exist, and to bring them into agreement. The process of reconciliation is important, as it prevents any fraudulent activities and allows the institute to have good financial health.
What is bank reconciliation software? A bank reconciliation software helps to record the company’s transactions on its account register. The software is used by financial firms to improve the efficiency of their reconciliation process in order to produce accurate financial statements. This reduces the company’s risk of making errors, such as uncleared or outstanding checks, any missed deposits, or the risk of financial fraud.
What are the Features of an Account Reconciliation Software?
Account reconciliation software has various features. For example, it helps to automize the month-end close process and centralizes the financial process with a software solution. The account reconciliation software can help the firm’s accounting team to update the general ledger balances in real-time and can easily compare the financial data from the statements and invoices. The data from the software can be recorded as an audit trail in the software’s database once it is reviewed and approved. The following are some important features of account reconciliation software:
- Reporting: The software helps to create the financial statement reports and underlines any records between the bank statement and general ledger if they are unmatched. The automated system helps with suggestions to bring both accounts into balance. It stores the records for any future historical reporting to compare the difference from previous financial statements/reports.
- Issue Management: The software will identify any exceptions in case of an issue, track follow-up trials, and roll forward issues into subsequent periods until they’re settled through a manual-cleaning process.
- Comparing the Account Transactions: The software will match the data that is recorded in the internal register with the bank transactions and bank statements from various sources to both of these accounts. It will establish rules for matching, which could be specific to an account or common to the whole firm.
- Classification: The software will classify the records into appropriate types of classes (which are user-defined or automatic) and use them for the matching process.
What is the Account Reconciliation Process?
Financial institutions use account reconciliation software to make their reconciliation process more effective and timesaving for their accounting team. However, in cases of a few transactions that are not captured by the software system, the accounting team will reconcile the transactions by following these steps:
Step 1 – The accounting team will start the account reconciliation process by first comparing the transactions in the internal records to the bank statements to see if they match. Then, they will identify the transactions that aren’t similar and record them separately.
Step 2 – The second stage is to record the transactions that may have been missed by either account registers. There might be a few recorded transactions in the internal register that are labeled as paid but may not be a part of the bank statement. These transactions are subtracted from the bank statement balance. Similarly, there may be transactions in the bank statements which may be charged but are not visible in the internal register, such as an ATM transaction charge, overdrafts, interest paid to the bank, etc. The bank may be aware of these transactions, but the firm will not know until they receive the bank statement.
Step 3 – The firm should ensure that the internal register, as well as the bank statements, has a record of the income received by the firm. Any record of receipts in the internal register in which the bank statement is missing or any transactions recorded in the bank statement which the cash register is missing should be matched and recorded.
Step 4 – There might still be a few transactions left that are recorded as paid in the cash register but are missing from the bank statement. These transactions need to be removed from the statement. Any error which exists in the bank statement should be calculated and rectified to reflect the accurate amount. Once the accounting team detects these errors, the bank will issue a new and revised statement.
Step 5 – The last step is to make sure that the transactions that appear in both accounts match each other. The existing differences should be added or subtracted accordingly so that both the internal register and the bank statements reflect the same balance in the end. Completion of the reconciliation process means a good financial standing for the firm.
The Importance of Financial Reconciliation
Financial reconciliation means comparing the internal financial expenditure with the external expenditure, locating any visible differences between the two, and taking corrective measures in case they’re required. There are many advantages for a financial institute to practice financial reconciliation at regular intervals by the financial month-end close. The process of reconciliation should be recorded and be approved by the firm’s authorities. The firm should keep a regular practice of the reconciliation process to ensure strong financial soundness. The benefits of having automated software for financial reconciliation are as follows:
- It will help to record the firm’s financial transactions along with bank transactions, financial statements, etc, and prepare them automatically. Since it’s an automated solution, the process will be more efficient and accurate.
- The firms can automatically complete the reconciliation process without a lot of manual effort from the accounting team and therefore save their time.
- The automated system will be able to detect and record the financial transactions, even the ones that are unaccounted for, such as bank charges or interests, and add them to the reconciliation process.
- The firm will be better able to identify, process, and investigate all transactions easily without damaging the firm’s cash flow.
- Due to its efficiency in recording financial data, the software can help prevent fraudulent activities in the firm.
There are new-age solutions can address the problems of rules-based solutions and make the reconciliation process more efficient. Solutions such as Tookitaki Reconciliation Suite are horizontally scalable to move hand-in-hand with ever-growing data sets and support flexible deployment options to minimise the cost of deployment.
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