Bank reconciliation is an accounting process that helps ensure that the money you have spent or deposited matches the amount mentioned in your bank statement. It allows you to check or search for transactions caused by fraud or financial statement errors. Your business and bank keep separate records of withdraws, deposits, or transactions. You must prepare a bank reconciliation once a month to ensure both documents align.
How Does Bank Reconciliation Work?
To reconcile your account, match the internal record of transactions and balances with your monthly bank statement. Business accounts are not as secure as consumer accounts under federal law, so you need to check your business account. Match each transaction carefully and note down the ones that need more investigation.
Catch Fraudulent Activities
One of the essential purposes of reconciling is to check for fraudulent activities. If you have noticed any unusual transactions, make sure to investigate them. Or, if you see that someone else has unauthorized access to your account, act before something harms you. If you do not prepare reconciliation for a long time, it can end up with bounced checks or failed payments in the short term, or you may become financially overstretched in the long term. All these things will affect the growth and sustainability of your business.
Prevent Complications
The bank reconciliation helps to identify any problems or difficulties in your business. For example, it can show you that your cash flow is down. Once the issue has been identified, reconciliation can help you identify the source of the problem. After that, you can easily take steps to solve the problem and fix your cash flows. It also allows you to keep track of your check and see if any payments by your customers have bounced. Bank reconciliation also helps if you have a joint account with a business partner who says they need some amount for business expenses. Still, he withdraws more money than he had told you.
Look for Data Entry Errors
Bank reconciliation assists you in identifying any data entry errors, such as entering wrong amounts and duplicated entries.
Confirm if The Financial Statements are Accurate
It happens rarely, but it is possible. Reconciling helps to confirm whether the financial statements are correct.
Help You Record Earned Interest
If you have started a business, the interest earned may be minor, but keeping track of your interest rate is good.
Helps to Control Theft
It will help you keep a check if any employee or someone else is stealing from your company.
Prevent Administrative Issues
Bank reconciliation also highlights any problems that are ongoing in your internal administration. It helps you make better choices that might help your business grow, such as changing the record-keeping system or accounting processes you used before.
Which is the Best Time to Reconcile?
Reviewing your bank accounts at least once a month is a good decision. If you have an elevated risk of fraud, it is wise to reconcile your accounts more often. Even some companies reconcile their accounts daily. You can also secure your account from any fraudulent activities by using Positive Pay. It helps notify you about any payment going out or into your account.
How to Reconcile Bank Account
You can reconcile manually or by using accounting software. You can take the formal or informal approach to reconciliation. But you must scrutinize your records with the bank records to rule out any discrepancies.
This task becomes simple if you have a well-managed bookkeeping system in which everything is managed and professionally written. Otherwise, bank reconciliation can become an arduous task, and you will be exhausted.
Conclusion
In conclusion, bank reconciliation is critical for ensuring financial accuracy, detecting fraud, and preventing complications in business operations. By reconciling accounts regularly and thoroughly, businesses can maintain integrity in their financial records, identify errors, and safeguard against fraudulent activities. It’s essential to conduct reconciliations monthly and use tools like Positive Pay to enhance security. Whether done manually or with accounting software, diligent reconciliation practices contribute to the overall efficiency and success of a business’s financial management.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.