When it comes to bookkeeping for businesses, bank reconciliation is an important aspect for any company. Reconciliation involves comparing your internal financial records with the bank statements. Account reconciliation is especially useful for explaining discrepancies between internal records and bank statements. Some differences may be acceptable because of the timing of payments and deposits. However, obvious differences might be a sign of fraud or theft. Businesses and individuals can reconcile their records on a daily, monthly, or yearly basis.
These are most 5 reasons why businesses should reconcile their bank statements each month:
1. Prevent Fraudulently: Signs of fraud should be your first priority when reconciling transactions in your bank account. For example, were legitimate checks that you issued duplicated or changed? Were checks issued without authorization? Were there unauthorized transfers out of the account? Does the account have any missing deposits?
2. Validate data entry: Reconciling your bank statements allows you to identify any irregular transactions, such as inputting wrong amounts, duplicating entries, and other data entry errors. Reconciling monthly might help you recall the purpose of withdrawals or deposits more easily. The longer period could be harder for you to recall.
3. Confirm the accuracy of bank statements: It's rare, but banks can make mistakes. Reconciling your bank statements monthly is one way to confirm that your financial statement matches your bank's statement. If the bank made mistake, you should contact the bank as soon as possible, because it might take a few weeks for large banks to respond. There is also a possibility that a check is rejected within a batch of checks or recorded the amount differently. The amount of a rejected check should be added to the bank's ending cash balance.
4. Accurate tax reporting: In order to generate a correct tax return, you must reconcile your bank statements.
5. Prevent Administrative Problems: Reconciling monthly also helps you identify internal administrative issues promptly. The proper process for managing transactions can result in outcomes such as: Knowing how much cash is really available in your accounts, avoiding bank overdraft fees or any unnecessary fees, whether customers’ payments have arrived or not, whether your employees' spending is reasonable or not, if not then you should find out why.
If there are any differences between the accounts and the amounts, these differences need to be explained. Monthly reconciliation of your bank statements allows you to identify problems before they become out of control.
It’s essential to review your business accounts at least monthly. For high-volume transactions businesses or situations with a higher risk of fraud, you may need to reconcile your bank accounts even more often. Some companies even reconcile their bank accounts daily.
If you, as a business owner, see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it.
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