The Importance of Bank Reconciliations in Dealerships

Every dealership has bank accounts. Revenue and expenses flow through bank accounts every single day. One of the most important things a dealership can do is perform a bank reconciliation to ensure the money being deposited into the account and the expenses being taken from the account are accurate.

A proper bank reconciliation compares the bank statement balance to the dealership’s general ledger (G/L) cash balance. This process ensures that recorded transactions match what actually cleared the bank and helps identify timing differences, errors, or unauthorized activity.

By failing to perform proper bank reconciliations correctly and consistently, a dealership is leaving a lot to chance. There is no way to be certain all deposits were made into the bank account or that only legitimate business expenses are being paid out.

What a Bank Reconciliation Helps Identify

By performing bank reconciliations, a dealership can check for discrepancies in dates, amounts, or descriptions. Reconciliations also help ensure there are no errors or duplicate transactions affecting cash accounts. An important part of the process is confirming who checks were made out to and for what purpose.

To properly support the reconciliation process, a dealership should prepare a daily cash receipts journal and a daily cash disbursements journal. These records provide the detail needed to trace transactions from the dealership’s books to the bank statement.

It’s important to note that while most dealerships are preparing bank reconciliations, many are not preparing them properly. Missing documentation, unreconciled differences, or lack of review can significantly reduce the effectiveness of the process.

Who Should Prepare and Review Bank Reconciliations

Bank reconciliations should be prepared by an accounting team member who is familiar with dealership transactions but does not have sole control over cash disbursements. Segregation of duties is a key internal control.

Just as important as preparation is independent review. A controller, office manager, or other member of management should review reconciliations monthly. The review should include:

• Verifying the bank statement balance agrees to the reconciliation
  
  
• Reviewing outstanding checks and deposits in transit for reasonableness
  
  
• Investigating unusual or old reconciling items
  
  
• Ensuring all differences are explained and supported
  
  

A reconciliation that is prepared but never reviewed is a missed control opportunity.

Fraud Risks Bank Reconciliations Can Uncover

In my professional career as a CPA, fraud examiner, and during my time in the FBI working complex financial crimes, bank reconciliations have uncovered a variety of illegal behavior such as ghost vendors, ghost employees, duplicate payroll checks, unapproved commissions and bonus payments, employee theft, misappropriation of assets, and financial statement fraud.

Why Dealerships Should Start — or Improve — Now

If your dealership is not currently preparing bank reconciliations on a regular basis, it needs to start now. If reconciliations are being prepared but not thoroughly reviewed or properly supported, improvements are equally important.

Having qualified accounting personnel prepare and management review bank reconciliations consistently can prevent issues and avoid potential embarrassment down the road. In addition, regular reconciliations give leadership greater confidence in cash flow reporting and financial decision-making. Clean, timely reconciliations help ensure management is operating with accurate information — critical when evaluating profitability, managing floorplan obligations, and planning for future growth.