Cash reconciliation services in accounting is the process of comparing entries from the internal ledger to bank statements. Making sure that the recorded balances of your firm and the bank statement match up is the major objective of reconciling your cash.
A cash reconciliation method enables businesses to find any inconsistencies and pinpoint the areas where the ledger and statement don't agree.
How to perform cash reconciliation - a step-by-step guide for accountant
Step 1:
Determine the accounting period that is being reconciled
Step 2:
Download reports from financial systems
Step 3:
Calculate cash within each report
Step 4:
Identify reconciling items across each report
What Benefits Can Businesses Expect from Cash Reconciliations?
Cash reconciliations, in the first place, guarantee that the stated cash and revenue balances are accurate. This guarantee has various extra consequences by nature, which are stated below.
confirmation that business operations are running well and that all sales are being paid for.
preventing the loss of money.
Giving investors and stakeholders accurate cash balances and revenue estimates.
A company's financial system should undergo testing and assurance of data integrity, notably the revenue recognition system.
You will get to know how to be aware of the 5 most common problems when performing a cash reconciliation.
1. Foreign Currency
Transaction Currency:
Functional Currency:
Settlement Currency:
2. Foreign exchange
3. FX Gain/Loss
4. Timing differences
5 .discrepancies and reconciling items
The Cash Reconciliation Process
The reconciliation process is typically automated in most businesses utilising accounting software. To find such unexplained variances, however, human involvement is necessary because some transactions might not be recorded in the system. The following are the fundamental actions involved in reconciling transactions:
1. Examine the bank statement and internal cash register together.
To determine whether the payment and deposit transactions are identical in both records, it is necessary to first compare the transactions in the internal register and the bank account. Find any transactions in the bank statement that have no supporting documentation.
2. Recognize any payments made that were entered into the internal cash register rather than the bank statement (and vice-versa)
There may be some transactions that, although they were marked as paid in the internal cash register, did not show up as paid on the bank statement. The transactions should be deducted from the bank statement balance.
The balance on the bank statement should be reduced by the transactions.
3. Verify that cash receipts and deposits are shown on the bank statement and cash register.
The business should make sure that all incoming funds are noted in the cash register and bank statement. Add the transactions to the bank statement if there are receipts that were entered in the internal register but were not included in the bank statement.
4. Equalize the two records.
Reconciliations are performed to ensure that the internal cash register and the bank statement match up. Both internal and external records should be identical once any discrepancies have been found and fixed in order to show good financial health.