Correctly matching general ledger and bank data is crucial
One of the most important challenges of bank reconciliation is having the necessary data. If you don’t then it will undermine the whole process. Different references on the bank and General Ledger (GL) sides make high volume transactions problematic. If the references are not identical then how are they going to match? What if there is no visible relationship between items on the bank statement and the GL? You may have a large monetary amount on the bank statement, which is made up of multiple transactions on the GL, or vice versa.
You can also have slight variances between amounts that are supposed to be matching. What about payments you thought were made but were reversed/cancelled such as checks. The volume of data sources can also be overwhelming – credit card sales, online sales, cash payments, location-based cash collection. Multiple banks and bank files such as bank statements, lockbox’s and remote deposits.
Timing differences massively affect reconciliation accuracy
Having the data is one thing, having it all reconcile at the same time is another. Having the correct opening & closing bank balances sounds easy right? However, not having those two figures correct will affect the accuracy of your bank rec, and all subsequent ones. If you are not starting with the correct opening balance, then you will not arrive at the correct closing balance. Having checks which are paid on your ERP system but not on the bank side is another key issue. Unpresented cheques and lodgements require unreconciled items to be rolled-over at period-end into future reconciliations.
Credit card timing delays can also be an inconvenience, as the transaction will be on your GL immediately. It may however take a number of weeks for it to appear on the bank statement, depending on when the credit card payment will be finalised. Delayed payments can result in 2-3 days of sales being reconciled against a single day of sales recorded on the GL. Direct debits that don’t process on time can also be a frustrating timing issue at month end. Timing is one of the most problematic challenges of bank reconciliation.
Full, real-time visibility and a complete audit trail is vital
After getting the data and timing aligned to complete your bank reconciliation. You now want to fully document and prove the reconciliation was completed correctly. You will also want to produce exact date and times for each step of the reconciliation, and who from the finance team completed it. All of this information is key for an internal, or more importantly, an external audit that may come at short notice to your company.
Having this recorded reconciliation information to hand, and having it stored securely is essential. If your bank rec has been done manually, then it will usually consist of a myriad of Excel spreadsheets, paper print-offs, bank statements and other files all stored within a folder or filing cabinet somewhere.