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The good, the bad, and the ugly side of US bank reconciliations

February 28, 2020Kerry (Rosvold) Peters

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.

Women coding at a laptop

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removes the check from the tracked list of outstanding checks and creates a record of the status of the check that is no longer valid.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.

  1. Use the bank account reconciliation instead of Excel. Simply having the records inside your software will make the information more standard and available.
  2. Set up the ability to import bank statement. While you can enter all of this manually, why would you want to? Let the system do the work by importing the bank information into the bank account reconciliation for you.
  3. Since you are using the import bank statement function, begin to use the automatic match. It may take a little bit of fine-tuning at first, but many companies experience a high level of automatic match, and only need to deal with exceptions to finish up the reconciliation.
  4. Use the transfer to general journal ability to record banking fees and bank interest.
  5. Begin to shorten the cycle of when you complete the reconciliation. Many companies are now reconciling accounts daily for the purpose of clearing outstanding checks more frequently. This allows them to get a better read on exactly where their cash flow is in addition to being able to look in the software to see if a check has cleared instead of logging on to the bank account’s website separately to get this information.

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.

Why is the U.S. still using paper checks and what to do about it (Part 1 of 3)

Why is the U.S. still using paper checks and what to do about it (Part 2 of 3)

Why is the U.S. still using paper checks and what to do about it (Part 3 of 3)

The good, the bad, and the ugly side of US bank reconciliations

Pay me now or pay me later: managing 1099s throughout the year

What’s wrong with U.S. sales tax and how to make it right with your ERP system

What is South Dakota vs. Wayfair and why should companies who sell online care?

O Canada! GST, HST, GIFI and other three- and four-letter words related to Canadian taxes

 

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The experts at New View Strategies are experienced Dynamics NAV and Business Central trainers and business process consultants who have walked in your shoes as former Corporate Controllers, Directors of IT, and Solution Architects, and believe increased utilization of your business systems is critical to the continued success of your company.
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