Bank reconciliation can be defined as a comparison made between the accounting records that are held by the company relayed to the bank accounts and the alterations made to that account by the bank. This process is necessary for the companies to undertake. 

We are now moving forward to look what is the bank statement reconciliation, the method in which it works, and the best method the handle the task.

Which is considered to be the best time to Reconcile?

It is a wiser decision to review the accounts on the monthly basis. For such situations that are of higher risks of fraud, you could be required to reconcile the bank transactions more often. Some of the companies do reconcile on the regular basis.

You could also build protection into your bank accounts, and your banks could provide you the useful ideas. To exemplify, many banks provide a solution known as Positive Pay that prevents your bank from approving payments out of the account unless you provide instructions to approve the individual payments in advance.

How do Bank Reconciliation works?

bank-ReconciliationFor bank reconciliation, compare the internal record of transactions and balances to the monthly bank statement. Verify the transactions individually and assure that the amounts match accordingly, make a note of differences that require more investigation. 

The process could be formal or informal as per your choice; some of the businesses create a bank reconciliation statement to document that they regularly reconcile accounts. On the monthly basis, if you don’t complete the process, you may perform it daily, quarterly, or at any period of your choice.

Some reasons why bank reconciliations are crucial

Bank reconciliations could be tiresome tasks, but financial hygiene will certainly pay you off. Below are the reasons why it’s a great idea to do them:

  • To analyze the business as it really is

While looking at the books, you intend to know that they are the reflection of reality. If your bank accounts and books don’t match, you could end up spending money that you don’t really have or holding on to the money that you could be investing in your business.

  • Tracking the cash flow

Management of the cash flow is a significant part of handling any business. Reconciling the bank statements allows you to analyze the relationship between the times when money enters your business and when it enters your bank accounts, and you may plan how you collect and spend the money in accordance.

  • Detection of fraud

Although reconciling bank statements will not stop the frauds, these will just let you know when these happened. To exemplify, you could have paid your vendor by check; however, they could tamper with it, by making the amount figures larger, and then get it cash. While you reconcile the bank statement, this discrepancy could show up.

You can also share a joint account with your business partner, when they draw money from your account to pay the expenses of the business, they could even take more than the record on the books. As soon as you reconcile the bank statement, you would also notice this. 

Reconciling bank statements is the best way to assure that you never lose any sleep worrying about the frauds.

  • Detection of bank errors

It is quite rare, but some of the times banks also make mistakes. If there is no discrepancy in your accounts that you may not explain any other way, it could be time to speak to someone at the bank.

  • To Stay on the top of Accounts Receivables

If you make use of the accrual system of accounting, you could debit your cash account when you complete a project and the client says “the cheque is going in the mail today” and when you do the bank reconciliation after a month, you realize that the cheque never came, and that money is not in your books.

The bank reconciliations are just like a fail-safe for ensuring that your accounts receivables never go out of control. If you consistently notice a discrepancy in accounts receivables between your books and bank, you know that you have a deeper issue to get it fixed.

How you may do the Bank Reconciliation?

You must find the transactions that are responsible for your books and your bank account is out of sync when you do your bank reconciliation. This allows you to match the balances. Then you may record whatever you did to match the balances.

Hire us now to get bank reconciliation done!

 At Reliable Bookkeeping services, deep dive into every step of a bank reconciliation process, but first ensure that your books must be up to date. They must be in order for the bank reconciliation to work. If you have fallen behind on your bookkeeping, you may use our bookkeeping services to get back on track.