Performing bank account reconciliation is crucial to maintaining a business’s financial record integrity. It involves making a comparison of the company’s records against the bank statements provided by the bank to address discrepancies. This process is crucial for maintaining positive cash flow and preventing theft from the bank account. In this blog post, we’ll discuss the steps involved in reconciling bank accounts. Let’s get started:
Understanding Bank Account Reconciliation
You can reconcile your bank accounts by comparing your company’s financial records with those of your bank. The reasons behind the reconciliation process are to identify any errors, fraudulent activities, or theft. It includes identifying any errors between the two sets of financial records and making changes to resolve those errors. You can ask your bookkeeper to prepare a bank reconciliation statement for you and resolve errors if any.
How to Reconcile Your Bank Accounts?
It’s a pretty simple process to perform reconciliation. Make sure to have proper documentation, and compare your financial transactions and balances. Let’s explore the starting point of a bank account reconciliation:
Collect business and bank records
To begin reconciling a bank account, first collect both business and bank records. You will need a bank statement covering the specific time period you wish to reconcile, along with your business’s financial records for that same duration. For reconciliation to be precise, both sets of records should include all financial transactions, whether outgoing or incoming.
Pay attention to your opening balance
Make sure to check that the starting balance mentioned on your bank statement matches the starting balance mentioned on your accounting records. If you are reconciling daily, you might think you can avoid performing this step, but it’s recommended to perform this step. This is the primary aspect, and it’s vital to make sure it’s accurate.
Review your financial transactions
Now that your opening balance is confirmed, it’s time to start reviewing your transactions. Go through each line carefully, comparing your business’s account with the bank statement.
Examples of transactions to check during this reconciliation process include sales, refunds, deposits, supplies purchased, payroll expenses, interest charges, and bank fees. Take your time to ensure everything aligns correctly. A thorough review at this stage can help catch errors early, saving you time and effort later on.
If you spot any discrepancies—whether it’s missing entries or incorrect amounts—you’ll need to identify the cause and make the necessary adjustments to reconcile the two records. If you need help with this process, consider using professional bookkeeping services in Melbourne to ensure accuracy and save time.
Adjust the bank statement
If you notice any records on your business’s account that aren’t mentioned on the bank statement, you’ll need to add them. These could include things like cash-in-transit, pending deposits, outstanding checks, or even bank errors.
Pending cash deposits should be added to the bank balance, while outstanding checks need to be subtracted to match your records. For any errors, you’ll need to either add or subtract amounts, so make sure to investigate them thoroughly before making any adjustments.
Review your closing balance
After matching all transactions, compare the final closing balance on the bank statement with your account balance. They should be the same. This closing balance will then serve as the starting point for your next reconciliation.
Benefits of Preparing a Bank Account Reconciliation Statement
Here are a few reasons to reconcile your bank accounts:
- You can easily spot errors. These mistakes can vary from simple errors to significant mistakes that could negatively impact your account balance.
- Frequent reconciliation can save you time managing tasks in the long run. By keeping accurate financial records, you can reduce the end-of-month mess, making it easy for your accountant in Melbourne to prepare and lodge taxes on your behalf.
- Reconciliation can help you identify fraud in small businesses. By making a comparison of your records against bank records, you can spot discrepancies.
Conclusion
Accurate bank account reconciliation is crucial for maintaining balanced records and preventing issues like fraud or missed payments. By getting reliable bookkeeping services for your company, you will be sure that your bookkeeper will reconcile your bank accounts more frequently.