As part of their regular financial management, business owners should compare their accounting records with their bank transactions to ensure that there are no mistakes or discrepancies. This involves checking that the numbers in their balance sheet match up with those in their bank statement. If any issues or fraudulent charges are detected, they must be addressed and corrected accordingly.

Understanding Bank Reconciliation

One important aspect of the monthly financial closing process is a bank reconciliation. This involves reviewing a variety of financial information, including the company’s balance sheet, income, bank statements, expenses, intercompany trades, and other relevant data. Maintaining accurate financial records is essential for tax purposes and for gaining a clear understanding of the company’s overall financial health.

What are the Three Steps in the Bank Reconciliation Process?

When you choose bookkeeping for small business, the bookkeeper will also perform bank account reconciliation to ensure accuracy in financial records. Generally, you receive a bank statement from the bank at the end of each month. The statement categorises the cash and other deposits made into the checking account of the business. The following are three steps to reconcile your bank account:

• Compare the Deposits
The bookkeeper in Melbourne ensures to match the deposits recorded in the business records with the ones in the bank statement. They compare the amount of each deposit recorded in the debit side of the bank column of the cashbook with the amount recorded in the credit side of the bank statement. Similarly, they compare the amount recorded on the credit side of the bank column with the amount recorded on the debit side of the bank statement. Finally, mark the items that appear in both records.

• Adjust the Bank Statements and Cash Account
Bookkeepers will help you adjust the balance on the bank statements to the accurate balance. For this, they add deposits in transit, remove outstanding cheques and remove bank errors. After that, it is important to adjust the cash balance in the business account.

• Compare the Balance
After the adjustment in the balances as per the books and the bank, the adjusted amount must be the same. If they are still not the same, you will have to repeat the bank account reconciliation process again.

Common Challenges Faced During Bank Account Reconciliation

Reconciliation errors can occur at any time. Such errors could come from misplaced dates, overlooked receipts, or duplicate records. Regular monitoring can identify and resolve these issues. The following are some common challenges faced during reconciliation:

• Redundant Entries
These can appear as double payments in the bank accounts, repeated invoices in accounts payable or redundant sales entries in business-specific reconciliation. It is important to double-check records, verify the other party if required and correct the redundancy. By opting for bookkeeping services in Melbourne, you can be sure that there will be no redundant entries.

• Returned Transactions
The reason behind a transaction being returned can vary and may include mistakes in account information, insufficient funds, authorisation issues, disputes, or other factors. Proper record-keeping and accounting are required to reflect the reversal of transactions in financial statements accurately.

• Unresolved Items
Identify unresolved issues, such as inaccurate invoices in customer/vendor reconciliations.

• Data Conflict in Inter-Company Reconciliation
There may be errors or discrepancies between parent companies and subsidiaries because of differences in recording transactions, or timing issues. Addressing the root cause and making adjustments in ledgers are crucial.

When Should You Reconcile Your Bank Accounts?

It’s common practice for businesses to reconcile their bank accounts at the end of each month. However, it can vary from one industry to another. For instance, high-volume businesses with high fraud risk must reconcile their bank accounts more frequently. Daily bank account reconciliation is important to avoid fraud or discrepancies. Accurate record-keeping can help your small business accountants prepare and file tax returns.

Every business needs to reconcile their bank accounts to ensure accurate records. You can ask your bookkeeper to do it for you if you want to focus on your business growth. You can also reach a Reliable Bookkeeping Services provider to stay ahead of your business books.