How to Do Bank Reconciliations for Retail

Reconciling bank data and substantiating cash balances is a critical procedure for accounting teams. Retrieving bank statements, ticking and tying transactions in spreadsheets, and storing supporting documents offline are common steps in this often manual control.

While the vast majority of organizations perform bank reconciliations, irrespective of their size, industry, or geographic location, this process is particularly cumbersome for retailers, especially when done manually.

On top of the typical bank transactions—like deposits in transit, outstanding checks, or bank fees—needing reconciliation, retail accounting teams have a plethora of additional sources of cash that may need further review, including transactions from the POS system, credit card processors, and other payment types, like PayPal, Amazon, and Google Pay.

On a monthly basis, or more frequently for retail companies, the bank reconciliation process is performed after the close of the period and the bank statements have been received. Accounting teams must go through ticking and tying transactions from the bank statements to the transactions recorded in the cash accounts on the general ledger. This validation process allows accountants to identify the transactions that didn’t match or the exceptions.

When discrepancies are found, accountants must investigate the transaction further, like obtain third-party deposits in transit reports from the credit card processor or copies of outstanding checks. After substantiating the balances and obtaining necessary supporting documentation, an adjusting journal entry may be required. Differences due to timing or errors and other corrective actions are reasons why a journal entry may be required.

As one can probably imagine, without automation in place, this labor-intensive bank reconciliation process is not sustainable and introduces unnecessary risk.

Bank reconciliations are a key control for most organizations. Cash must be substantiated before a company can certify the integrity of its financial statements, and the way companies do this is through the bank reconciliation process.

Performing this process on a monthly, weekly, or even daily basis provides advantages outside of being a certification requirement for a company’s financials. Detecting fraud and other errors, such as missing payments, and validating P&L and other balance sheet accounts, like accounts receivable and accounts payable, are all objectives of the bank reconciliation process.

Although this process can be fairly straightforward for some companies, there’s no reason to leave a high-risk and typically high-volume account reconciliation to a manual, spreadsheet-driven process.

A fully automated bank reconciliation results in a closed-loop approach, meaning there are no breaks in the process. Each step has been thought out and designed with this general outcome in mind: free accountants to focus on analyzing exceptions and discrepancies.

Software that automates the bank reconciliation process securely imports data from both the ERP or general ledger systems and bank files or statements. It will then automatically compare account balances and transaction-level detail, identifying those transactions that didn’t match. This part of the process removes the cumbersome manual transaction matching, freeing accountants to focus on analysis.

But that’s just the beginning. Other features included in bank reconciliation software include:

• Review and approval workflows, with embedded segregation of duties

• Templates to standardize the process

• Policies and procedures to ensure accuracy

• Full audit trail of supporting documentation

• Close checklist to ensure all steps are completed timely

For companies in the retail industry, reconciling cash takes on a whole new meaning. Due to the high volume of transactions coming from numerous data sources, bank reconciliations for retailers can be fairly complex. That is why it is critical to have a centralized platform that integrates with the most common retail systems.

BlackLine enables automated data extraction from these systems, matches the transactions, and auto-reconciles balances based on rules-based engine. Cash and cash-related reconciliations that can be automated by BlackLine include:

• POS to General Ledger

• POS to Bank (Cash Deposits)

• POS to Processor (Credit Card Transactions)

• Processor (Credit Card Deposits) to Bank

• Bank to General Ledger

Automating reconciliations and centralizing the workflow and supporting documentation into one platform enables retailers to move to a more frequent process, smoothing out the workload throughout the month.

No amount of technology can fix a messy process. Before embracing automation, ensure that the reconciliation is an actual reconciliation. The steps in the process require substantiation of account balances through third-party confirmation, and not just ticking and tying between transactions.

The most common pitfall when starting on the automation journey is not knowing how to identify which processes to automate. Think about repetitive transactional activities like VLOOKUPs, rainbow spreadsheets, copying and pasting data, and multiple Excel tabs and files—these are common daily activities that can be automated.

With a traditional process, accountants spend about 75% of their time on transactional activities, leaving 25% to exception-handling and analysis. Automating the manual tick and tie part of the reconciliation helps shift to an exception-based approach.

No transformation is successful without having the people behind the processes embracing the change automation brings. Start by getting buy-in from accounting teams by showing them the art of the possible with technology.

The retail industry has experienced a substantial transformation in recent years, and with the e-commerce boom paving the way for the future, change is expected or risk getting left behind.

Don’t know where to start? Read this use case spotlight to learn more about how to streamline critical processes like bank reconciliations, with modern accounting solutions that free up valuable resources, reduce risk, and build process resiliency.

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