Financial management is one of the most important factors that guarantee the success of a business. It is not just about receiving and spending money but it’s about taking every dime spent into account for the benefit of the company. Hence, bank reconciliation is an important aspect of ensuring that your data is analyzed and up-to-date. It is a way of gaining control over your business, most especially its finances.
Bank reconciliation should not be a one-day process. It should be developed to become a habit if you are seeking the best results. In this article, we will analyze why reconciliation is important and the role it plays in the success of your business.
What is bank reconciliation?
Bank reconciliation is the process of comparing the business financial records with your bank statements. It can also be called documentation that outlines the differences between your bank account balance and the balance in your financial reports.
In big companies, there is a department that oversees the finance and accounting of the company’s income and expenditure. They have accurate information concerning figures hence making the documentation process easy. When it comes to small businesses, the accounting process lies in the hands of the owner. He oversees these and might be required to put the figures in a book or make use of accounting software.
How to reconcile a bank account?
When you are dealing with a large number of transactions over several years, errors arise, and correcting these messes requires time especially when you have to analyze your bank account statements. However, when the software is doing the tough work for you, there is perfect accounting but if you are doing the reconciliation by hand, then there is a need for a reconciliation process. You might be asking yourself how will I go about this, here are some steps that will help when it comes to a reconciliation process for your business.
Compare your deposits
Deposits are always the first step in performing a bank reconciliation. Keep in mind that those working in the bank are also humans and humans make an error. So every time you make your deposits ensure that you check and verify that the information given is that of your ledger.
If you find any missing or duplicate accounting, take time and understand if it was the sales, refund interests, or any other source. After finding the source of that income or differentiating the duplicate, ensure that you feed the data into your system.
Lastly, check if there were any errors on the deposits you made. For instance, you might have deposited 1000 dollars and the bank left a zero due to errors. Talk to the people in charge within the bank and see the error rectified.
Compare checks
Sometimes you find the bank statements having noted the canceled checks. What you have to do is make a comparison between the bank statements and the ledger to know if both amounts agree. You then use numerical means to know if some checks are still outstanding. Take your time to compare the check numbers that have been cleared by the bank and those issued to help you determine outstanding cheques.
Compare debit and credit memo
Debit memos show all the deductions made by the bank. These are the amounts the bank lays on behalf of the depositor. Credit memos Verify your bank’s credit and debit balance that it is the same as what it is on your ledger.
Check balances
After checking everything and making some adjustments, ensure that your bank balances are correct. Ensure that the corrected amount matches what you have in your account and cash.
Adjusting the balance
Sometimes you find that the bank statements do not reflect your actual amount. It might be due to errors or checks that are still in the transition process. Either way, you will need to make the required changes to your bank statements to indicate the right amount. Apart from the bank account, you will need to make some adjustments to your records to reflect all the company’s financial records. You must ensure that all the deposits and cash records are included in the statements.
Comparing your balance
After doing all the required tasks, you will need to compare The end amount to ensure that they match. However, if you find that there is still some difference in the end amount, you will be required to start the reconciliation process again until you ensure that the final amount is the same.
Why is bank reconciliation important?
The financial part of the company is the most important sector if you want to ensure the continuity of the company. I believe you have come across or heard about some companies that incurred huge losses and we’re forced to shut down. Here are the reasons why you should do a reconciliation regularly.
Detects and corrects financial issues
Bank reconciliation allows you to capture any Cash flow. It helps to know if someone is tampering with the figures for personal gain. Knowing the right figure will help you narrow down your financial issues and fix the problems as early as possible.
It helps in revealing the fraud
Fraud has found its way to different businesses. However, they are the source of a company’s downfall. Taking care of these frauds early helps the business avoid major losses that will create a huge impact on the business.
Maintaining the correct financial reports
Bank reconciliation always provides you with a platform where you will have a real view of the financial growth of your business. If you fail to follow up and perform bank reconciliation, you might find yourself spending money that is not yours or holding back in spending the amount your business has which will stagnate the growth of the business.
It is an indicator of any mishandling of money
Although a reconciliation will not show you who took part in mismanagement, it can give you the indicator that there is fraud going on in your company. For instance, if you had planned to pay your supplier some amount and it is indicated in your book but the withdrawals made are higher than the amount you had agreed on, it will give you a clear picture of what is going on. Sometimes the partners can decide to make some transfers without notifying you. The reconciliation will enlighten you on when this act happened and it will be easy to route it down to the one who took part in this act.
It helps to stay updated
Accrual accounting is always a difficult task especially when you are performing it without the help of software or a certified professional. You might have finished your project and a client tells you he will send a check and then you forget the payment. Keeping these records is always a difficult task on its own but it has a crucial role in keeping your company’s finance updated. It helps give you the actual trend that your company is moving to. Being updated on your financial situation will help you in planning for the upcoming projects and know the actual amount under your name. It is also a very important way in protecting your financial strength.
Conclusion
A bank reconciliation is always the best way to keep your financial records in check and up-to-date.
If you need help with keeping your business financial records up-to-date, it’s highly recommended to work with a reliable accounting agency. One of the most trusted accounting firms in Florida that you can turn to is Swiftbooks, LLC. Call 786-204-2881 to get a FREE Trial today!
