Bank Reconciliation using Oracle Cash Management
Bank Reconciliation Process - Bank accounts are the assets of the company and must be explained as part of the audit requirements. Bank reconciliation can reveal fraud as well as errors. Reconciliation is the process of explaining the difference between two balances which could be due to legitimate reasons like timing differences.
Bank Reconciliation uses the following formula:
Bank Account Balance in Oracle Financials + Items on Bank Statement, but not in Financials
Items in Financials, but not on Bank Statement = Balance as per Bank Statement
Both types of differences are to be analyzed to determine whether the source of discrepancy was error or a legitimate difference and action initiated accordingly.
Legitimate differences occur due to the following reasons:1. Timing differences – Check Issued but not presented or Checks Deposited but not cleared.
2. Bank charges and other items unknown till the bank statement is received.
3. Fees for currency conversion
4. Unprocessed Transactions
These differences once identified have to be eliminated by making appropriate accounting entries.
Reconciliation Process:
Bank transactions entered directly into GL or generated from Payables, Receivables or Payroll can be reconciled with CM.
1. Loading the Bank Statement:
The transactions can be reconciled manually or automatically by loading an electronic statement directly into CM. Loading is done using the bank statement open interface where a bank statement in the requisite flat file format is uploaded into CM tables. The automatic reconciliation looks for certain match criteria to determine whether a transaction and a bank statement line are one and the same.
2. Reconciling Journal Entries:
The journal entries entered directly in GL can be reconciled with the bank statement. The Auto reconciliation program matches a journal line description with the bank statement line transaction number.
3. Reconciling Payments:
Supplier payments entered in Payables can be reconciled to the bank statement lines in CM. The payment status against each check is updated as “Reconciled”.
4. Reconciling Receipts:
Receipts created in Receivables can also be reconciled to the bank statement lines in CM. CM updates the status of the receipts to “Reconciled” and creates appropriate accounting entries for transferring to GL. Payables and Receivables can generate reconciliation accounting entries for cash clearing, bank charges and foreign currency gain or loss.
5. Reconciling other Transactions:
Certain transactions like bank charges, interest credits, specific exchange rate applied against foreign currency transactions, customer receipts returned due to bounces etc, are known only when the bank statement is received. These would not have been initiated from Oracle Applications. CM is the primary point of entry for these transactions.
Importing Bank Statements and Validation:
Use CM’s Reconciliation programs to:
•Validate the information in the bank statement open interface tables
•Import the validated bank statement information
•Perform an automatic reconciliation after the import process completes
The AutoReconciliation program performs the following validations on loading bank statement information into the bank statement open interface tables:
•Bank statement header validation
•Control total validation
•Statement line validation
•Multicurrency validation
Reconciling Bank Statements Automatically:Use AutoReconciliation program to automatically reconcile any bank statement in Oracle CM. There are three versions:
1. AutoReconciliation: Use this program to reconcile any bank statement that has already been entered in CM.
2. Bank Statement Import: Use this program to import an electronic bank statement after loading the bank file with a SQL*Loader script.
3. Bank Statement Import and AutoReconciliation: Use this program to import and reconcile a bank statement in the same run. After the program has been run, review the AutoReconciliation Execution Report to identify any reconciliation errors that need to be corrected and re-run the program again if corrections are done.
Bank Reconciliation uses the following formula:
Bank Account Balance in Oracle Financials + Items on Bank Statement, but not in Financials
Items in Financials, but not on Bank Statement = Balance as per Bank Statement
Both types of differences are to be analyzed to determine whether the source of discrepancy was error or a legitimate difference and action initiated accordingly.
Legitimate differences occur due to the following reasons:1. Timing differences – Check Issued but not presented or Checks Deposited but not cleared.
2. Bank charges and other items unknown till the bank statement is received.
3. Fees for currency conversion
4. Unprocessed Transactions
These differences once identified have to be eliminated by making appropriate accounting entries.
Reconciliation Process:
Bank transactions entered directly into GL or generated from Payables, Receivables or Payroll can be reconciled with CM.
1. Loading the Bank Statement:
The transactions can be reconciled manually or automatically by loading an electronic statement directly into CM. Loading is done using the bank statement open interface where a bank statement in the requisite flat file format is uploaded into CM tables. The automatic reconciliation looks for certain match criteria to determine whether a transaction and a bank statement line are one and the same.
2. Reconciling Journal Entries:
The journal entries entered directly in GL can be reconciled with the bank statement. The Auto reconciliation program matches a journal line description with the bank statement line transaction number.
3. Reconciling Payments:
Supplier payments entered in Payables can be reconciled to the bank statement lines in CM. The payment status against each check is updated as “Reconciled”.
4. Reconciling Receipts:
Receipts created in Receivables can also be reconciled to the bank statement lines in CM. CM updates the status of the receipts to “Reconciled” and creates appropriate accounting entries for transferring to GL. Payables and Receivables can generate reconciliation accounting entries for cash clearing, bank charges and foreign currency gain or loss.
5. Reconciling other Transactions:
Certain transactions like bank charges, interest credits, specific exchange rate applied against foreign currency transactions, customer receipts returned due to bounces etc, are known only when the bank statement is received. These would not have been initiated from Oracle Applications. CM is the primary point of entry for these transactions.
Importing Bank Statements and Validation:
Use CM’s Reconciliation programs to:
•Validate the information in the bank statement open interface tables
•Import the validated bank statement information
•Perform an automatic reconciliation after the import process completes
The AutoReconciliation program performs the following validations on loading bank statement information into the bank statement open interface tables:
•Bank statement header validation
•Control total validation
•Statement line validation
•Multicurrency validation
Reconciling Bank Statements Automatically:Use AutoReconciliation program to automatically reconcile any bank statement in Oracle CM. There are three versions:
1. AutoReconciliation: Use this program to reconcile any bank statement that has already been entered in CM.
2. Bank Statement Import: Use this program to import an electronic bank statement after loading the bank file with a SQL*Loader script.
3. Bank Statement Import and AutoReconciliation: Use this program to import and reconcile a bank statement in the same run. After the program has been run, review the AutoReconciliation Execution Report to identify any reconciliation errors that need to be corrected and re-run the program again if corrections are done.
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