As a business owner, it’s crucial to prepare a bank reconciliation statement for your company. Bank account reconciliation statement helps companies address errors that can negatively impact their financial and tax reporting. It is also an essential way to prevent and detect errors and fraud. It is also a simple process to help companies manage cash flow.
What is a bank reconciliation process?
Bank reconciliation is the process that ensures that the cash balances in their books match the cash in their bank account. If these two balances don’t match, a bank account reconciliation statement will help you know the reason for these discrepancies. There is no exact time to prepare a bank account reconciliation statement. However, many bookkeepers prefer reconciling bank accounts on a periodic basis.
Why is a bank reconciliation statement prepared?
Various reasons are responsible for preparing bank account reconciliation statements. These include:
Identifying errors
Accounting errors, such as double or missed payments, can’t be overlooked. Bank account reconciliation helps you to identify such accounting mistakes early. Most businesses want to know about any issues before they cause embarrassing situations. You will know which payments have been issued through bank account reconciliation.
Spot fraudulent activities
Bank account reconciliation helps you to identify fraudulent activities and minimise the risk of transactions that could cause late fees and penalties. You can get bookkeeping services for your business to ensure accuracy in your business books.
Monitoring interest and fees
Regular bank reconciliations help you monitor interest payments, fees, or penalties applied to your account, enabling you to adjust your records accordingly.
Confirming receivables
Reconciling your bank statements lets you verify all your receipts, preventing the hassle of pursuing payments that have already been received and helping you identify any receipts you might have missed depositing.
Cash control
Another key reason for conducting a bank reconciliation is to enhance internal control over your company’s cash. Ideally, this process should be carried out by someone different from the individual responsible for handling and recording receipts and payments. This separation of duties helps minimise the risk of misappropriation of the company’s funds.
Improved consistency in your balance sheet
You and other stakeholders need to be sure that the cash reported on your company’s balance sheet is correct. A bank reconciliation helps match the additions and deductions on the bank statement with the records in your company’s general ledger. If there are differences, like pending payments or deposits not yet processed, they are usually timing differences. Since most companies use double-entry accounting, any mistake or omission in the cash account will affect another account as well. Doing a bank reconciliation helps catch and prevent these errors.
How to prepare a bank reconciliation statement?
The bank account reconciliation involves the following steps:
Review the bank statement
First of all, you need to review the bank statement for any discrepancies to perform a bank reconciliation. This includes reviewing all withdrawals, deposits, fees and other details.
Compare internal records with bank statement
In the next step, you need to compare your internal record with your bank statement. As a result, you will find discrepancies and errors (if any). Check amounts, dates, or cheques that have been written but are not on the bank statement.
Adjust the internal records
Adjust the internal records if you find any error or discrepancy while comparing internal records with your bank statement.
Reconcile the accounts
After identifying and adjusting all differences, it’s essential to reconcile the cash balance shown on the internal records with records on the bank statement by summarising all financial transactions that occurred during the period. This will ensure that your accounts are balanced accurately.
Conclusion
Bank reconciliation statements are essential for companies to identify errors, fraud, and discrepancies in a financial account. When done frequently, bank account reconciliation helps companies spot cash flow errors and plan and pay taxes accurately. They can identify fraud before it causes serious damage. You can choose our Reliable Bookkeeping Services to ensure accurate business records that would match the records of your bank statement.
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