Reconciliation of Bank Accounts

Reconciliation

In general accounting terms, ‘Reconciliation’ can be defined as a process of matching two sets of records and ensuring that they agree.

It is a process of comparing the internal financial against statements from external sources such as a bank, a credit company, or any other financial institution to ensure the money leaving the account matches up to the money spent in actual.

Reconciliation is an important process and is essential to keep a check on the financial well-being of a business, as it assists in tracking and detecting any errors, discrepancies, or fraud. 

Things to keep in mind while starting the Reconciliation workflow

What is Importing a statement vs Reconciliation?

In Versa Cloud ERP, a user can import the below statements:

• Credit card
• Bank
• Expenses

Importing a statement in the Versa system is the first step in the reconciliation workflow. This will allow the user to create a record in the system of the bank transactions.

A common question asked by businesses is will Versa automatically categorize the transaction type for them? The answer is YES

For the first time, a user will have to set the categories for the transactions in Versa. Versa Cloud ERP will then automatically categorize the transaction type such as expenses, interest, charges, etc for the user going forward if a similar transaction is found.

The import can be done by going under Tool> Imports and Exports> Bank Transactions

See this article for more details.

Reconciliation on the other hand is the process to compare two sets of records, as explained earlier. External records are bank statements, credit card statements, or income and expenses statements, and internal records are the transactions made in the ERP either by way of doing a workflow (Raising a PO/SO, Creating an Invoice/Bill, etc.) or by passing a manual GL entry.

Reconciliation in Versa: Workflow

The process can be started by going under the tab General Ledger > Reconciliation. The first thing that will be seen is the below screen:

Key Features:

As of Date: The “as of date” on the statement is the date the business wants to do the reconciliation.

As an example, the user has a bank statement for the date 30^th June then in Versa, the user will populate the “as of date” as 30^th June.

Ending Balance: The ending balance is the amount reflected as closing as of the date of the bank statement. The balance as of 30^th June will be considered as an ending balance.

Account: The business GL account that needs to be reconciled with the bank statement will be selected under “account”

Bank charges- Expense Account: The account where the business would like to record all bank-related expenses will be selected under this header. Versa Cloud ERP will provide a default account listed as bank charges. However, a business can create a specific account to record any such charges according to their requirements.

Interest earned- Revenue Account: Similarly, the account where the business would like to record all interest received will be selected under this header. Versa Cloud ERP will provide a default account listed as interest-related revenue. However, a business can create a specific account to record any such interest according to their requirements.

This will allow the user to start the process of reconciliation.

As highlighted in the screenshot above, we have selected:

As of date: 30-June- 2022

Ending balance: 100,000s

Account: USD Checking

Bank Charges- Expense Account: Bank Charges

Interest Earned- Revenue Account: Interest Income

Post selecting the desired account and date, a user will hit create.

Once the reconciliation process is started, Versa Cloud ERP will show a list of transactions for the period. The user can check all the transactions they wish to include in the reconciliation process. The goal is to make the difference amount zero or as close to zero as possible.

During the process the user can face 2 scenarios:

1. Transactions in Versa but not in the bank statement.
2. Transactions are considered in the bank statement but not in Versa.

Let us look at the scenario in detail and see how they affect the reconciliation process:

1. Transactions In Versa but not in bank.

An example of this can be a cheque deposited by the business to the bank on the 28^th of June. The business will typically consider this as a part of the current month’s reconciliation. But the bank may take 2-3 business days to process and realize it in the business’s bank accounts. When the bank statement is generated on the 30^th of June, the statement will not have any entry pertaining to the cheque deposit, but the business will reflect the deposit date as 28^th June and the transaction will show up in the record.

In Versa

To overcome this, when checking the line items on the reconciliation screen the user will leave out the cheque deposit line item to match the transactions to the bank statement.

2. Transactions are in the bank but not in Versa.

These entries will comprise bank charges/expenses and interest. The business will not know the exact value of these till they do not receive the bank statement. Therefore, the external bank statement will consider these transactions whereas the internal statement will not reflect them.

In Versa

To overcome this, the business can pass manual GL entries to match the value during reconciliation.

What if the user does not upload the bank statement in Versa?

Uploading the bank statements in Versa Cloud ERP is suggested. However, it is not mandatory and there may be scenarios where the user does not upload a bank statement in Versa.

Many companies run it once a month, but if businesses want to/are required to run it frequently Versa allows the flexibility of uploading a list of transactions more than once. Additionally, Versa Cloud ERP also allows users to add bank transactions manually and add a GL entry if such a need arises.