No matter whether you have a small business or a large business, you need to have control over expenses, net profit, and income received. There is a process called the bank reconciliation process that can help you know whether transactions or statements in business books match bank statements or not. In this way, you can find out financial mistakes at an early stage. Each month, your business will involve various transactions where you can track money that flows in and out of the company.
What is a Bank Reconciliation Process?
Reconciling bank statements means comparing bank statements against your company’s internal reports to find out if there are any discrepancies. The closing balance in your business books is called the book balance, and on the other hand, the closing balance of the bank is called the bank balance. You might have differences between the bank balance and book balance. However, it is important for you to identify these differences and find out the reasons behind those differences.
Either bookkeepers or small business accountants can reconcile bank accounts on your behalf. It is possible that you have a different amount in your business books as compared to the amount in your bank account. In worst cases, it can lead to overdraft expenses, bounced cheques, and an overdrawn account.
How does Reconciliation of a Bank Account Work?
At any periodic intervals, reconciliation of a bank account can be performed. Reconciling a bank account is the most common task managed on a monthly basis. It is important to cross-check your internal records against your bank statements so you can be sure that the amounts match accurately. If there are any discrepancies, then those can be resolved at an early stage before it destroys your business finance. Bookkeepers are not only responsible for reconciling bank statements, but they also offer small business bookkeeping services.
Why is Bank Reconciliation Important?
As discussed before, it is important to reconcile your bank account frequently. If you are managing your business books on your own, then you have to reconcile your bank accounts. However, if you have a bookkeeper, then the bookkeeper will reconcile your bank account. The Sooner they find any errors, the sooner they can resolve those errors and prevent your business from a big loss. Reconciling is a part of bookkeeping for small businesses. The following are some reasons to reconcile bank accounts for your business:
- Track Transaction Status
Suppose you have sent a cheque to an individual, but it doesn’t mean that he/she will cash it immediately. An un-cashed cheque may leave you to think that you have money in your account, but you don’t. Once you recognise these cheques, you can request an individual to cash the cheque.
- Detect Fraud
Reconciling bank accounts can help you detect fraud to reduce the risk of damage to the company. With periodic reconciliation of bank accounts, discrepancies between bank accounts and business books will be identified, which means the fraud can be detected when it happens, and bookkeepers of Melbourne can help you take corrective actions.
- Save You Money
If you reconcile your bank account on a daily basis, then it can save you money in the long run. You can spot bank charges or hidden charges of which are not aware, and it can be done by reviewing your statements.
- Validate Data Entry
Reconciling bank statements will enable you to recognise any inconsistencies, such as duplicating entries, entering wrong amounts, and other wrong data entries.
- Accuracy of Financial Statements
Banks may make mistakes, but it is rare. With the help of reconciling bank statements, you can confirm that your financial statements are equivalent to your bank statements.
If you have found any discrepancies between the amounts and the accounts, then these discrepancies need to be explained. Reconciling bank statements will enable you to identify issues before they get out of control. Hence, it is important for businesses to detect fraudulent activity early on – they can’t rely on the bank to cover issues in their account. Apart from bookkeeping services, you must also have someone to look after your taxes. For this, you can take help from a tax return accountant.
How Often Should You Reconcile Your Bank Statements?
It is recommended to reconcile your bank statements whenever you receive a statement from your bank. It is often done at the end of the day, month or on weekly basis by businesses that contain a number of transactions. Before reconciling the bank statements, every financial transaction must be recorded accurately.
Now, you know why you should reconcile your bank statements regularly and what issues can be resolved with the help of the reconciliation process. Melbourne bookkeepers are experts in reconciling bank statements and performing other bookkeeping tasks. You can contact the Reliable Bookkeeping Services provider to get bookkeeping services for your business.