What is Bank Reconciliation?
Matching a company's accounting records to its bank statement to confirm the two agree.
Definition
Bank reconciliation is the routine control of comparing the cash transactions recorded in the general ledger to those on the bank statement and resolving any differences. Discrepancies arise from timing items like outstanding cheques and deposits in transit, as well as bank fees, interest, or errors not yet recorded in the books. Reconciling regularly catches missing entries, duplicate postings, and potential fraud, and ensures the cash balance in the accounts is accurate. It is a standard part of the period close and a key item auditors examine.
How Bank Reconciliation Works in ERP
An ERP automates bank reconciliation by importing bank statements or connecting directly to the bank via feeds, then auto-matching statement lines to recorded transactions using rules. Unmatched items are flagged for review, and the system can create entries for bank charges or interest automatically. Continuous bank feeds let many companies reconcile daily rather than only at month-end, supporting a faster close.
ERP Vendors with Strong Bank Reconciliation
Frequently Asked Questions
What causes differences between the books and the bank statement?
The most common causes are timing differences, such as cheques the company has issued that have not yet cleared, or deposits recorded in the books but not yet processed by the bank. Others include bank fees, interest, and direct debits that the bank applied but the company has not yet recorded, plus occasional errors on either side. Reconciliation identifies and resolves each of these. An ERP with bank feeds flags them automatically for the user to action.
How does automated bank reconciliation work in an ERP?
The ERP pulls in bank transactions through a direct feed or imported statement file, then applies matching rules to pair each bank line with the corresponding ledger entry, for example by amount, date, and reference. High-confidence matches are reconciled automatically, and only exceptions need human review. The system can also post recurring items like fees by rule. This turns a manual, error-prone task into a quick daily check.