The term bank reconciliation may sound boring and may not be fun. However, when you do them regularly, it offers protection against pitfalls, such as overdrawing money and becoming a fraud victim. Besides, something is interesting about bank reconciliation as they are about finding the balance. Find yourself a comfortable chair and look at what bank reconciliation accounting is, how it works when you need it, and the best way to manage the task.
When you reconcile your bank statement, you compare it with the records of bookkeeping for a similar time and identify discrepancies. Once you do that, you make a record of those transactions that have a discrepancy, so that accountant can find out if there is any went missing from the business.
If you are one of those who does the bookkeeping by yourself, you need to be prepared to reconcile the bank statement on a fixed schedule. In case you are working with the bookkeeper, they would manage the same on your behalf. However, your business only requires reconciling statements in case you use an accrual method of accounting. When you decide to follow cash-based accounting, you record every transaction like a bank. There should not be any differences between the books and the bank statement.
The companies with full-time accountants make sure to check every number and the book to match reality. However, when it comes to small businesses the responsibility primarily falls on the shoulder of owners. These days even small businesses have started giving their bank reconciliation accounting to professionals.
Bank Reconciliation accounting is a tiring process, but it manages financial hygiene. Below are some of the reasons why it is essential for your business.
Whenever you look at the book of accounts, you want to be sure that it reflects the reality of your business. In case your bank account and the statement fail to match, you may end up spending money you don’t have or holding the money you could have invested in your business.
Managing the flow of cash is essential for the success of any business. By reconciling the statement, you would see the relationship between when money enters to bank business and when it reaches your bank account, and plan how you would collect or spend the money accordingly.
Bank Reconciliation accounting cannot stop the frauds but will help you identify and track them. So you can be aware avoid such troubles. To know more about it, please connect to reputed accounting firms that have been working on reconciliation for years. Besides, you could pay the vendor through cheque, and they can temper the amount by making the withdrawn amount larger and then cash it. The changes would show up when you reconcile your bank statement. Bank Reconciliation is a way to make sure that fraud is not happening with you and would get worry-free sleep.
Errors from the bank side are rare, but there are times banks do mistakes. In case, there is a discrepancy in accounts that you cannot explain through any means; it is time to speak to someone at your bank. They would identify the error and do the needful.
If you are one of those who use the accrual accounting system, you might debit your cash account when the project is completed, and the client says that the cheque is going via mail, and I promise that. When you do your reconciliation after a month, you find out that the cheque never came, and the money is not showing in your accounts. Bank reconciliation makes sure that your receivables never go out of control. If you are continuously finding errors in receivables, you would know that you have a bigger problem to fix.
Whenever you do bank reconciliation, you first have to find the transactions responsible for the books and accounts showing the discrepancy. It allows you to match the balances, and you can record whatever chances you have made to match the balance.
Bank reconciliation accounting experts would check every step of the process in detail. But before that, your book needs to be up to date. They are required to perfect for the bank reconciliation to work. In case you have fallen behind the bookkeeping, you can speak to the experts at Amela Accounting. We offer a range of accounting services which give assurance of quality work and make sure you get the best result for your business.