Nathaniel454
Anmeldungsdatum: 30.01.2022
Beiträge: 213
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 Verfasst am: 04. Mai 2022 23:15 Titel: Bank Reconciliations: Everything You Need to Know |
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Bank reconciliations. Even the name sounds boring. They may not be fun, but when you do them regularly, you protect yourself from all kinds of pitfalls, like overdrawing money and becoming a victim of fraud.
Plus, there's something zen about bank reconciliations. It's about finding the balance, after all.
So go into the full lotus position or just find a comfortable chair. We'll look at what bank statement reconciliation is, how it works, when you should do it, and how best to manage the task.
First of all, what is bank reconciliation?
When you "reconcile" your bank statement or bank records, you compare it to your accounting records for the same period and point out any discrepancies. It then makes a record of those discrepancies, so you or your accountant can be sure there is no money "missing" from your business.
Bank reconciliations aren't just limited to your bank accounts. All credit cards, PayPal accounts, or other accounts with business transactions must be reconciled.
Who is responsible for bank reconciliations?
If you do the bookkeeping yourself, you should be prepared to reconcile your bank statements at regular intervals (more on this below). If you work with a bookkeeper or online accounting service, they will handle it for you.
You only need to reconcile bank statements if you use the accrual method of accounting. This is to confirm that all uncleared bank transactions you recorded actually went through.
If, on the other hand, you use cash accounting, then you record each transaction at the same time the bank does; There should be no discrepancy between your balance and your bank statement.
Not sure which accounting method you're using? This article on cash vs. accrual accounting will make that clear.
In large companies with full-time accountants, there is always someone checking to make sure all the numbers check out and that the books match reality. In a small business, that responsibility usually falls to the owner (or a bookkeeper, if you hire one. If you don't have a bookkeeper, check out Bench).
Five compelling reasons why bank reconciliations matter
Bank reconciliations or digital reconciliation solution can be tedious, but financial hygiene will pay off. Here's why it's a great idea to make them.
1. To see your business as it really is
When you look at your books, you want to know that they reflect reality. If your bank account, credit card statements, and accounting do not match, you could end up spending money you don't really have, or keeping money you could be putting into your business. This can also help you spot any bank service fees or interest income, making sure your business cash balance is accurate.
2. To track cash flow
Cash flow management is part of running any business. Reconciling your bank statements allows you to see the relationship between when money comes into your business and when it goes into your bank account, and plan how you raise and spend money accordingly.
3. To detect fraud
Reconciling your bank statements won't stop the fraud, but it will let you know when it happened.
For example, you could pay a supplier by check, but they could manipulate it, increase the amount withdrawn, and then collect it. You won't know until the bank debits your account. The discrepancy would show up while you reconcile your bank statement.
Or you can share a joint account with your business partner. When they take money out of your account to pay for a business expense, they could take more than what they record on the books. You will notice this as soon as you reconcile your bank statement.
Hopefully, you'll never lose sleep worrying about fraud, but reconciling bank statements is one way to make sure it doesn't happen.
4. To detect banking errors
It's rare, but sometimes the bank will make a mistake. If there's a discrepancy between your accounts and the bank's records that you can't otherwise explain, it may be time to talk to someone at the bank.
5. To stay on top of accounts receivable
If you use the accrual accounting system, you can "debit" your cash account when a project is finished and the client says "the check will be mailed today, I promise!". Then, when he does his bank reconciliation or transaction reconciliation platform a month later, he realizes the check never came and the money isn't on his books (even though his accounting shows he got paid).
Bank reconciliations are like a fail-safe to make sure your accounts receivable never get out of control. And if you consistently see an accounts receivable discrepancy between your balance and your bank, you know you have a deeper problem to fix. |
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