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If your company is not based in the United States (or even if they are!) there are business mysteries behind banking and taxation that don’t exist in many other places and sometimes don’t seem to make a lot of sense. A lot of those requirements originate from state and federal level regulations. This blog series will uncover what those mysteries are and how to understand them as systems that can be easily managed with Dynamics NAV and Dynamics 365 Business Central.
The reconciliation of the bank account is a necessary step for the month-end close to keep closer track of current available cash. The bank reconciliation in US-based companies is centered around tracking of paper checks since this is a primary method of payment in many companies. In addition to this, it is considered an internal control designed to detect fraud, since any differences between the bank account and recorded transactions in the company’s software are identified and corrected frequently.
Many companies do not use their software to reconcile the bank account, often using Excel instead. Often the reason for this is that the bank reconciliation is so simple, it is not necessary to have it in the company’s software. In a typical situation, once the bank account is reconciled, the only remaining amounts should be outstanding checks. These checks are paper checks that have been issued by the company but have not yet been presented for settling from the vendor to the company’s bank. The outstanding check is still considered as issued, but the total amount of the outstanding checks is defined as bank float (money sent out but not yet claimed), that the company keeps in their bank account until it does clear the bank. Any other fees missed transactions, interest, or errors should be identified and corrected as part of the reconciliation process.
Illustration from AccountingCoach.com
The outstanding checks are monitored over time, and if not cleared within a certain amount of time, or if identified as lost, may be marked as a financially void check in the system. This removes the check from the tracked list of outstanding checks and creates a record of the status of the check that is no longer valid.
During the annual audit, the check register with the complete list of checks issued may be reviewed by auditors. In general, they are looking to see if all check numbers are accounted for on the list, to see if they are sequentially issued, and will likely ask for samples which match to the invoices they were issued to pay. They will be particularly interested in void checks or checks that were printed and not posted.
Companies can take advantage of the bank account reconciliation that comes with Dynamics NAV and Dynamics 365 Business Central to gain efficiencies in this process. This is our list of top 5 best practices for bank account reconciliations.
If you’d like some help with de-mystifying business processes and correct system setup related to US-based accounting practices, please get in contact with us to discuss how New View Strategies can help. We have specialists with deep accounting expertise in using Dynamics NAV and Dynamics 365 Business Central who can move quickly through the requirements for your company and establish clear and accurate processes to manage these complex business needs.
Looking for more topics related to US-based accounting? Check out the rest of our related blogs at the links below.