Bank Accounts & Reconciliation

For a manufacturing business, the bank account is the central artery of financial operations. Raw material payments flow out, customer collections flow in, salaries are disbursed, loan EMIs are debited, and GST payments are remitted — all through your bank accounts. Udyamo ERP Lite provides dedicated bank account management that goes beyond the Chart of Accounts, giving you a structured way to track bank-specific details, monitor balances, and reconcile your ERP records with your bank statements.

This chapter covers how to set up bank accounts in the system, how they link to your Chart of Accounts, how balances are maintained, and the process of bank reconciliation.

What You Will Learn

• How to set up and manage bank accounts in Udyamo ERP Lite
• The difference between bank accounts and chart of accounts entries
• Key fields: bank name, account number, IFSC, branch, account type
• How to designate a default bank account
• How bank balances are updated by payments
• The concept and importance of bank reconciliation
• How to use the audit trail for bank accounts
• Step-by-step instructions for adding a bank account and viewing transactions

Prerequisites

• Understanding of the Chart of Accounts and asset accounts (Chapter 32)
• Familiarity with payment processing (Chapters 24 and 29)
• Access to the Accounting module in Udyamo ERP Lite

Bank Accounts in ERP

In the Chart of Accounts, your bank accounts are asset accounts — they represent money the business owns. But a bank account in real life carries additional details that a simple accounting entry does not capture: the bank name, branch, account number, IFSC code, and account type (current or savings). These details are needed for payment processing, bank exports, cheque printing, and reconciliation.

Udyamo ERP Lite handles this with a dedicated BankAccount model that stores bank-specific information and links to the corresponding asset account in the Chart of Accounts. This gives you the best of both worlds: full accounting integration through the CoA and detailed bank information for operational use.

Bank Account Fields

The following fields define a bank account in Udyamo ERP Lite:

Account Types: Current vs. Savings

Indian businesses typically maintain one or more of the following:

Current Account. Designed for business use. No limit on the number of transactions. Does not earn interest (or earns minimal interest). Most manufacturing businesses use a current account as their primary operating account. All vendor payments, customer receipts, salary disbursements, and statutory payments flow through this account.

Savings Account. Earns interest but may have transaction limits. Some businesses maintain a savings account to park surplus funds. Savings accounts are less common for primary operations but are sometimes used for specific purposes such as holding security deposits or fixed deposit linked accounts.

Tip: Most manufacturing SMBs need just one or two current accounts for daily operations. Keep the structure simple. Every additional bank account adds a reconciliation burden.

Default Bank Account

The is_default field designates one bank account as the default for the organization. When users create payment transactions (customer receipts or vendor payments), the system pre-selects the default bank account. This reduces data entry errors and speeds up payment processing.

Only one bank account can be the default at any time. To change the default, navigate to the bank account you want to designate, enable the is_default flag, and save. The previous default is automatically unset.

Tip: Set your primary operating current account as the default. If your business uses one bank for vendor payments and another for customer collections, designate the one with the highest transaction volume as the default.

Linking to the Chart of Accounts

Every bank account in Udyamo ERP Lite corresponds to an asset account in the Chart of Accounts. When a payment is processed through a bank account, the corresponding CoA asset account is debited (for incoming payments) or credited (for outgoing payments).

For example:

• Bank Account: "HDFC Current — Main" (BankAccount model)
• CoA Account: "HDFC Bank — Current Account" (Account model, type: Asset, code: 1020)

When a customer payment of 1,18,000 is recorded against "HDFC Current — Main":

• The current_balance on the BankAccount record increases by 1,18,000
• A ledger entry is created on the CoA account "HDFC Bank — Current Account" with a debit of 1,18,000
• The current_balance on the CoA Account record also increases by 1,18,000

Both records stay in sync because they represent the same underlying reality — cash in the HDFC bank account.

How Balances Are Updated

The current_balance field on the bank account is updated every time a payment transaction references that bank account:

The balance is always calculated from actual posted transactions. It is not a manually entered figure (except for the opening balance at the time of setup).

Bank Reconciliation

Bank reconciliation is the process of comparing your ERP records (the bank account ledger) with your actual bank statement to ensure they match. This is one of the most important controls in financial management.

Why Reconciliation Matters

Even with an ERP system handling the accounting, discrepancies between your books and the bank statement are inevitable. Common causes include:

Timing differences. You issue a cheque to a vendor on 28 March, and your ERP records the payment immediately. The vendor deposits the cheque on 3 April. Your bank statement shows the deduction in April, but your ERP shows it in March.

Bank-initiated transactions. Bank charges, interest credits, standing instructions, and EMI debits happen at the bank's end. If these are not recorded in the ERP, the balances will diverge.

Errors. A payment may be recorded at the wrong amount, against the wrong bank account, or duplicated. Reconciliation is how you catch these errors.

Unauthorized transactions. Reconciliation can reveal transactions you did not initiate — a critical security control.

The Reconciliation Workflow

Bank reconciliation in a manufacturing business typically follows this monthly process:

1. Obtain the bank statement for the month (download from internet banking or collect from the branch)
2. Open the bank account ledger in Udyamo ERP Lite, filtered to the same period
3. Match transactions — go through each entry in the bank statement and find the corresponding entry in the ERP ledger. Mark matched items.
4. Identify unmatched items in the bank statement — these are transactions the bank has recorded but your ERP has not. Typical examples: bank charges, interest credits, direct debits (EMIs), and cheques deposited by customers that you have not yet recorded.
5. Identify unmatched items in the ERP — these are transactions you have recorded but the bank has not yet processed. Typical examples: cheques issued but not yet presented, online transfers initiated but not yet settled.
6. Prepare the reconciliation statement — the format is:

Balance as per ERP ledger                            4,07,000
Add: Cheques deposited not yet cleared               + 75,000
Less: Cheques issued not yet presented              - 1,50,000
Add: Interest credited by bank (not yet in ERP)       + 2,100
Less: Bank charges (not yet in ERP)                     - 850
                                                    ---------
Balance as per bank statement                        3,33,250

7. Record missing entries — create journal entries in the ERP for bank charges, interest credits, and any other bank-initiated transactions that were not previously recorded
8. Investigate discrepancies — any remaining differences should be investigated and resolved

Warning: Do not ignore small reconciliation differences. A 500-rupee discrepancy today could indicate a systematic issue that compounds over months. Investigate every difference, no matter how small.

Reconciliation Frequency

Tip: The longer you wait between reconciliations, the harder it becomes to investigate discrepancies. Monthly reconciliation is the minimum for any business. If your factory processes hundreds of payments per month, consider weekly reconciliation.

Audit Trail for Bank Accounts

Udyamo ERP Lite maintains an audit trail for bank accounts, accessible via the audit_trail action. The audit trail records:

• When the bank account was created and by whom
• Changes to bank account details (account number, IFSC, default status)
• All transactions that affected the bank balance

This audit trail is essential during statutory audits. Auditors need to verify that bank account details are accurate, that changes are authorized, and that the transaction history is complete and tamper-proof.

Step-by-Step: Add a Bank Account

Your factory opens a new current account with State Bank of India for vendor payments.

1. Navigate to Accounting > Bank Accounts
2. Click New Bank Account
3. Fill in the fields:

4. Click Save

The system creates the bank account record. Ensure that a corresponding asset account exists in the Chart of Accounts (e.g., "SBI Bank — Current Account" with code 1040). This account will be used for the accounting entries when payments are processed through this bank.

Step-by-Step: View Bank Transactions

1. Navigate to Accounting > Bank Accounts
2. Click on the bank account name (e.g., "HDFC Current — Main")
3. The detail page shows the current balance and account details
4. Click the Ledger or Transactions tab to view all transactions
5. Use the date filter to narrow the view to a specific period
6. Each transaction row shows the date, description, debit or credit amount, and running balance
7. Click any transaction to navigate to the underlying journal entry, and from there to the source document

Tips & Best Practices

Tip: Record bank charges and interest credits promptly — do not wait for month-end. These bank-initiated transactions are easy to forget, and they cause reconciliation differences that waste time.

Tip: Keep your bank account names descriptive. "HDFC Current — Main" is better than "Bank Account 1." When you have multiple bank accounts, clear naming prevents errors during payment processing.

Tip: If your business uses multiple bank accounts, assign a specific purpose to each. For example, one for vendor payments, one for salary disbursement, and one for customer collections. This simplifies reconciliation and provides clearer cash flow visibility.

Warning: Never share bank account credentials or payment authorization tokens. The audit trail records who performed each action, but it cannot prevent unauthorized access if credentials are compromised. Use role-based access controls (Chapter 48) to restrict who can view bank details and process payments.

Required: The IFSC code must be accurate. It is used for electronic fund transfers (NEFT, RTGS, IMPS) and for generating bank export files for bulk payments (Chapter 30). An incorrect IFSC code will cause payment failures.

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