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Month Close Series-Banking Transactions

Month Close Series-Banking Transactions

by Sanjeev Archak

In the second part of the month close series, we will look at the relevance of banking transactions. A month close process involves recording vendor bills, raising invoices, counting inventory & reconciling general ledgers.

An account which needs to be reconciled is your bank account. We have covered the need for doing bank reconciliation in a post here. In this post we will learn how to handle bank transactions with a view to close the books.

Banking Transactions-traditional way:

Historically, accountants have been handed bank statements to compare with general ledger entries. The bank statements have evolved from being on paper to excel statements. But the task of comparison has remained the same over the years. An accountant is required to prepare a bank reconciliation statement identifying missing transactions.

For smaller entities doing the reconciliation manually will still work. However, large business’s which have thousands of entries will have to find a way to automate the reconciliation process.

Banking Transactions- modern way:

Accounting software, like Zoho Books, now makes it easy for the books to “sync” the bank statements and  perform auto reconciliations. Once the bank accounts are synced, the accounting team needs to:

  1. Identify recurring transactions
  2. Set up rules to auto classify these recurring transactions

Examples of recurring transactions are bank charges, tax payments.

The customer receipts can be matched to sales invoices using the “best match” feature within the software. A similar treatment can used for vendor payments. Once the customer receipts, vendor payments and bank charges are recorded, the accountant now needs to do the bank reconciliation.

Modern accounting software now come with auto reconciliation features which eliminate the need for excel based reconciliation. Post  reconciliation, a major item in the month close list is ticked off.

Thus, using features of syncing and auto reconciliation, accounting function can save a lot of man hours. The team can direct their efforts to work which is more strategic in nature.

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