Why cash reconciliation is so important in the accounting industryOctober 25, 2021 by Carole D'Arcy
Why cash reconciliation is so important in the accounting industry
Cash reconciliation is an extremely important accounting process that ensures the actual money spent matches the money leaving or entering an account at the end of each quarter.
But it can be a complex and time-consuming process, and one that can be prone to human errors or fraudulent activity.
Nevertheless, it’s a standard practice for all organizations to manage their cash and keep operations running smoothly.
Here we explore why cash reconciliation is so important in the accounting industry.
What is cash reconciliation?
Let’s start with a definition.
In accounting, cash reconciliation is the process of matching internal ledger entries to bank statements. The main goal of reconciling your cash is to ensure that the recorded balance of your business and the recorded balance of the bank statement match up.
A cash reconciliation process helps organizations to spot any discrepancies, so they can identify where the ledger and statement are failing to match.
Once a discrepancy has been identified, the business can investigate payments which could have been made by error, or even fraudulently.
Reconciliation is usually done regularly, such as in monthly or quarterly intervals, as part of the accounting process.
Automating your cash reconciliation process
Cash reconciliation has historically been a manual process. But there has to be a more efficient way to reconcile cash, right? There is!
Many organizations have now embraced auto-reconciliation to streamline the process and become more efficient.
Businesses are now using their ERP systems to carry out their cash reconciliation process. An ERP, like NetSuite ERP, will use a pre-defined set of criteria to match the statement and the ledger together.
This means that finance teams no longer have to manually match accounts together.
Now, their time can be utilized doing other important financial activities and will typically only step in if there are any discrepancies that need to be investigated.
Automatic cash reconciliation allows your business to cut down time, cost, and potential for manual errors.
For more information of automating the process, read our ultimate guide to automating your cash reconciliation process.
Why is cash reconciliation so important?
- Be aware of fraudulent activity
One of the top priorities when it comes to cash reconciliation is to check for signs of fraudulent activity. Were payments authorized without permission? Are there missing payments? These are the kinds of questions you should be asking. - To avoid accounting errors
Having a proper cash reconciliation process avoids cash balance errors and keeps accounting recordings as accurate as possible. By performing cash reconciliation consistently, you can make sure your accounting records are current and accurate. - Confirm accuracy of financial statements
It is extremely rare, but banks can make mistakes. Reconciling your cash is one way to avoid mistakes and confirm that your financial statements match your bank statements. - Accurate tax returns
In order to generate an accurate tax return, you must correctly reconcile your bank statements. - Improved cash forecasting
Making business decisions based on incorrect cash balance can cause major short term and long terms consequences. Cash reconciliation is a great way to avoid that, will assist with keeping your accounting operations organized, and your business will likely see cash flow improvements.
Cash reconciliation with Nolan Business Solutions
At Nolan Business Solutions, we specialize in providing cash reconciliation software solutions that, combined with insights from our team of cash management experts, will help you automate that time consuming yet critical business process. Contact the Nolan team to learn more.