Academic journal article Canadian Social Science

Bank Reconciliation as a Due Process Imperative for Effective Financial Management

Academic journal article Canadian Social Science

Bank Reconciliation as a Due Process Imperative for Effective Financial Management

Article excerpt


This paper establishes the importance of Bank Reconciliation as a mandatory activity for ensuring effective financial management. Every financial manager wants to keep close tab on the bank balances as his job involves real time decisions that have cost implications in his favour or against. A little delay in the clearing of an effect could result in huge financial losses to the organization in terms of interest charges or other opportunity costs. A delay could also be the source of loss of goodwill which can spell huge consequences for the entity's business relationships. The paper affirms that there are several ways of carrying out bank reconciliation. However, it further concludes that the bank reconciliation process ensures that undue losses are not sustained through inadvertence of the staff of either the focal organization or the bank.

Key words: Bank reconciliation; Opportunity cost; Uncleared effect; Uncredited cheques; Stale effects; Due date; Unpresented effects; Effective financial management; Fair view; Due process


Bank reconciliation prompts the accountant to the proof of actual funds balance for inclusion in the assets of the company at any given time. Timely bank reconciliation is a necessary tool in the hand of the financial manager to knowing the actual cash available for use or for investment on a given date. The bank reconciliation statement is required as frequently as possible. Unfortunately, however, several organizations do not attach adequate importance to the regular and timely preparation of bank reconciliations in spite of the fact that financial managers acknowledge its value. Those smaller entities with fewer bank transactions and fewer suppliers and customers doing less bank reconciliation might not experience as much risk as for bigger organizations. For the bigger and complex conglomerates, it is a very complex issue because of the myriad interfaces, parties and potential weaknesses involved in the process of reconciliation. This is so crucial that often internal auditors' vouching to confimi value and safety of a firm's assets (Nwaze, 201 1) enlist verification of timeliness of bank reconciliations. The external auditor does not only want to verify the cash balance reported at the end of the accounting period; he practically wants to be certain that the amount reported in the books of the firm existed in reality on the cut off date, and that all the cash owned by the organization has been properly included in the reported funds.

This paper does not stop at the review of how bank reconciliations are carried out in the institution, but also the paper attempts to expose the relevance of bank reconciliation as a primary due process to enhance the strength of financial management in any enterprise. More specifically, this study focuses on areas where effective bank reconciliation could be applied to achieve the best management of organizational financial resources.

As Finkler (2010) asserts, "Financial management is the subset of management that focuses on generating financial information that can be used to improve decision making". The author also adds that accounting is a system for keeping track of the financial status of an organization and the results of its financial activities. As an essential bridge for accomplishing the outlined roles of financial management and accounting, the bank reconciliation function stands out as an indispensable tool in the hands of financial managers who constantly attempt to ensure that their cash tracking responsibility includes prevention of unauthorized funds leakages. As a financial information generation tool, bank reconciliation will rightly precede decision making and serve as an imperative for quality financial management. Also, it gives a great impetus to the fair view of the state of affairs of the organization.

Significance of the Study

Without bank reconciliation, the true cash balance of the organization will not be known and any financial decision taken is like grappling in the dark. …

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