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Best Practices for Bank Reconciliation

Bank reconciliation is the process of matching the balances in an entity's accounting records for a cash account to the corresponding information on a bank statement. It is a fundamental control for preventing fraud and ensuring financial accuracy.

Why is it Crucial?

Without regular reconciliation, your business decisions are based on incorrect data. You might think you have more cash than you do, leading to bounced checks, or you might miss unidentified payments or bank errors.

Best Practices for Efficient Reconciliation

1. Do it Frequently

Don't wait for the year-end. Perform reconciliation monthly, or even weekly for high-volume businesses. The longer you wait, the harder it becomes to track down discrepancies.

2. Automate Where Possible

Modern accounting software like Tally Prime allows for auto-bank reconciliation by importing bank statements in Excel or XML format. This drastically reduces manual errors.

3. Investigating Discrepancies

Common causes for mismatch include:

• Outstanding Checks: Checks issued but not yet presented for payment.
• Deposits in Transit: Money received but not yet cleared by the bank.
• Bank Charges: Service fees deducted by the bank that aren't yet recorded in books.
• Interest Income: Interest credited by the bank.

4. Watch Out for Failed Payments

In the era of UPI and digital payments, transaction failures are common. Ensure that failed transactions are reversed in your books if they were reversed in the bank.

5. Segregate Duties

The person who issues checks or manages cash should ideally not be the same person performing the reconciliation. This acts as a check-and-balance against internal fraud.

Conclusion

Bank reconciliation is not just a chore; it's a health check for your business finances. Maintaining accurate records builds trust with stakeholders and ensures you are always ready for audits.

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