Tips for reconciling bank statements more efficiently

Bank statement reconciliation ensures that every spending is accounted for — meticulously matching your transaction records with your bank statements to flag and fix discrepancies. While essential, manual handling of the reconciling process can be tedious and error-prone.

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With OCR (optical character recognition) technology, you can automate data extraction seamlessly, turning hours of strain into mere minutes of review. This article is about how bank statements are traditionally reconciled and how the bank statement process can be streamlined to benefit businesses with OCR and Nanonets.

Nanonets is a platform that uses machine learning and OCR to extract data from scanned documents, making it easy to reconcile bank statements or automate financial statement spreading for your business.

For a deeper understanding of the foundational principles behind reconciling bank statements, check out our detailed exploration in "What is Bank Reconciliation? Definition, Examples, and Process." This guide offers comprehensive insights into the processes and best practices essential for effective bank reconciliation.

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Key takeaways

• Reconciling bank statements is crucial for businesses of all sizes to ensure the accuracy of financial records, detect fake bank statements, manage cash flow, comply with tax regulations, and meet legal requirements.
• Traditional reconciliation involves manual review and comparison of bank statements with a company's financial records, which can be time-consuming and error-prone, especially for businesses with high transaction volumes.
• Manual data entry is a common source of errors in reconciliation, leading to potential financial misstatements and missed fraudulent activity.
• Automating reconciliation allows businesses to free up time and resources to focus on more critical tasks.
• Nanonets streamlines the reconciliation process, enabling businesses to capture and process relevant data efficiently, identify discrepancies, and resolve them quickly.

What is a bank reconciliation statement?

A bank reconciliation statement is a financial document that helps individuals or businesses compare their own accounting records of transactions with the records provided by their bank through bank statements. Its primary purpose is to identify and explain any discrepancies between the two sets of records.

Let's say you run a small business and you have a checking account with a local bank. At the end of the month, you receive your bank statement, which shows the following information:

• Bank Statement Balance as of Month-End: $10,000
• Deposits made during the month, according to the bank: $4,000
• Checks written and cleared during the month: $5,500
• Bank service charges deducted: $50
• Interest earned on the account: $20

Now, you compare this information with your own accounting records for the same period. Your records show the following:

• Your recorded deposits for the month: $3,800
• Your recorded checks for the month: $5,300
• Your recorded bank service charges: $40
• Your recorded interest earned: $15

Bank Reconciliation Statement:

Starting Bank Statement Balance: $10,000

Add: Deposits Made (Bank's Record): $4,000

Less: Checks Written and Cleared (Bank's Record): $5,500

Less: Bank Service Charges (Bank's Record): $50

Add: Interest Earned (Bank's Record): $20

Adjusted Bank Statement Balance: $8,470

Now, compare the adjusted bank statement balance ($8,470) with your own accounting records. If they match, it means your records and the bank statement are reconciled, and there are no discrepancies. If there is a difference, it signifies that some transactions need to be reviewed and explained, such as outstanding checks or deposits that haven't cleared yet.

The bank reconciliation statement helps ensure the accuracy of your financial records by accounting for any timing differences or errors between your records and the bank's records. It's an essential tool in financial management, as it helps you identify and resolve discrepancies and maintain the integrity of your financial statements.

Traditional reconciliation of bank statements

Reconciling bank statements traditionally involves manually reviewing and comparing your bank statements to your own records of financial transactions. This can be a time-consuming and error-prone process, especially for businesses with large volumes of transactions.

The process of reconciling bank statements typically involves the following steps:

1. Gathering all relevant documentation. From your bank statements to your business’ own records of financial transactions (such as invoices, customer orders, receipts, account records, and more) – all relevant material must be gathered for the reconciliation.
2. Review and compare. Review and compare the various documentation to identify any discrepancies. This may involve manually reviewing and comparing transaction dates, amounts, descriptions, or more fields. The larger the volumes and complexity of transactions, the more prone such manual reviewing can be to error.
3. Investigate and resolve discrepancies. If there are discrepancies between the statements and your own records, they will need to be investigated. Resolving them may involve contacting your bank or other parties involved in the transactions to understand the root of the discrepancy and clarify any misunderstandings.

Manual data entry is also a common cause of errors in the bank statement reconciliation process. When data is entered manually, there is a risk of mistakes being made, such as transposing numbers or misinterpreting information. These errors can have serious consequences, such as misstated financial reports or missed fraudulent activity.

Why is bank reconciliation important?

Reconciling bank statements is important for businesses of all sizes for several reasons.

First, it helps to ensure the accuracy of a company's financial records. Any discrepancies can be identified and resolved by comparing the transactions listed on a bank statement with the corresponding entries in a company's records. This helps to ensure that a company's financial reports and other financial data are accurate and reliable.

Second, it helps to detect and prevent fraud. Reconciliation helps to identify any unauthorized transactions or other suspicious activity that may not be immediately obvious in a company's records. By detecting fraudulent activity early, a business can take steps to prevent significant financial loss.

Third, bank statement reconciliation helps with cash flow management. By reconciling bank statements on a regular basis, a business can keep better track of its cash flow and identify any discrepancies that may affect future financial decisions.

Fourth, reconciliation helps with tax compliance. By tracking all the transactions and having a clear record of the expenses and income, companies can better understand their tax obligations.

Lastly, reconciling bank statements is a legal requirement in many countries, and failure to do so may result in penalties and fines.

Overall, bank statement reconciliation is an important task that helps to ensure the accuracy and integrity of a company's financial records, enables fraud detection and prevention, supports better cash flow management, helps with tax compliance, and fulfills legal requirements. Learn more about the importance of bank reconciliation.

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Tips for effectively reconcile bank statements

• Organize your financial records: Maintaining an organized system for storing financial documents is essential. This includes keeping track of receipts, invoices, and bank statements. Consider using digital tools or software to digitize and categorize your documents, making them easily accessible for reconciliation.
• Regular reconciliation: It's crucial to reconcile your bank statements regularly, ideally on a monthly basis. This frequency helps you catch discrepancies early and ensures that errors don't accumulate over time. Regular reconciliation also enhances your ability to manage cash flow effectively.
• Segregate duties: If possible, involve multiple individuals in the reconciliation process. This practice helps reduce the risk of errors and fraud. Separate responsibilities among team members, such as recording transactions, reconciling accounts, and approving discrepancies, to maintain a system of checks and balances.
• Check for timing differences: Be vigilant about timing differences between when transactions are recorded in your financial records and when they appear on the bank statement. Adjust for deposits in transit (deposits you've made but haven't yet cleared) and outstanding checks (checks you've written but haven't been cashed by the payee).
• Review bank statements carefully: Take the time to review each line item on your bank statement thoroughly. Careful scrutiny can help you identify any discrepancies or irregularities that may require further investigation or correction. Pay attention to transaction dates, amounts, and descriptions to ensure accuracy in your records.
• Verify interest and fees: Scrutinize your bank statements for accuracy regarding bank service charges, fees, and interest earned. Ensure that any interest earned is correctly credited to your account, and question any unexpected fees or charges with your bank if necessary. These charges can impact your account balance and financial records.
• Use reconciliation software: Consider leveraging accounting or reconciliation software to streamline the process. Many modern software solutions can automatically sync with your bank accounts, categorize transactions, and provide real-time updates. These tools can significantly reduce manual effort and errors in the reconciliation process.

How OCR technology and Nanonets can help?

OCR technology can automate the process of extracting data from bank statements, reducing the need for manual data entry and minimizing the risk of errors.

Nanonets is a platform that uses machine learning OCR to extract data from scanned documents, PDFs, Word Documents, text files, and various types of documents. It also offers a range of features that make it well-suited for bank statement reconciliation, including the ability to handle multiple document types and create customizable workflows and logic for data extraction and processing.

For example, a business using Nanonets can scan its bank statements and extract the data automatically using the platform's OCR capabilities. They can then use customizable workflows to specify which data points to extract, such as transaction dates, amounts, and descriptions, and also further process them according to custom logic. This eliminates the need for manual data entry and helps ensure the accuracy of the extracted data.

Once the data has been extracted, Nanonets allows businesses to easily review and compare the extracted data to their own records of transactions. Nanonets enables businesses to seamlessly capture relevant data and process them further downstream, to a database ERP or another business tool, according to customizable workflows and logic. This helps businesses save time and effort, reduce manual errors, and identify discrepancies to resolve them quickly and efficiently.

Specifically, the process of bank statement reconciliation helps with:

• Increased efficiency: Automating the process of extracting data from bank statements with OCR technology can significantly reduce the time and effort required to reconcile bank statements.
• Improved accuracy: By eliminating the need for manual data entry, businesses can minimize the risk of errors and improve the accuracy of their financial records.
• Increased productivity: By streamlining the process of reconciling bank statements, businesses can free up time and resources to focus on other important tasks.

Get started with Nanonets to reconcile bank statements today.

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