The Importance of Bank Reconciliations and How it Impacts Your Small Business
Does your business have the money it thinks it has?
If you’re not a fan of running your small business accounting using “guestimates” and assumptions, then bank reconciliation is the internal control tool you’re missing.
Bank reconciliation is the process of comparing internal financial records (transactions) to external records like your bank statement. But it’s more than a balancing act. Bank reconciliation is the perfect way to audit internal logging and tracking systems, detect fraud, improves sustainability, and increases credibility.
The Benefits of Bank Reconciliation
Bank statements, receipts, and other records of transactions provide only a snapshot of how your business is performing financially. Bank reconciliation provides the big picture. Here are some of the most important benefits of bank reconciliation and how it impacts your small business.
When reconciling transactions, spotting fraud is a priority. Consider the following.
- Are any deposits missing?
- Were all issued checks authorized?
- Were any checks you issued altered or duplicated resulted in double withdrawals?
- Unauthorized cash withdrawals?
Small business fraud can occur in a multitude of ways but it can be hard to miss unless you know exactly what you’re looking for.
Incorrectly recorded income and expense entries can be as detrimental to small business bookkeeping as a fraud. Ensuring that transactions are error-free
- Prevents overages and fees
- Catches improper spending
- Prevent embezzlement
- Allows your small business accounting to produce high-quality financial statements that are accurate and reliable
Banking discrepancies can cost small businesses their investors, credibility, and bottom line.
Anticipate and Prevent Administrative Issues
Small business accounting practices should always include bank reconciliation in order to anticipate and prevent administrative issues including
- Understanding accurate cash flow and knowing how much cash you really have available in your accounts
- Avoid bounced checks
- Prevent failed payments to suppliers and partners
- Making sure customer payments have cleared
- Tracking and following up with outstanding checks
- Catching bank errors
Administrative issues can cause a domino effect on the accuracy of small business bookkeeping. Precise reconciliation of your organization’s financial accounts will be reflected on balance sheets, statements, and audits.
How Bank Reconciliation Works
Bank reconciliation has several steps including:
Compare Bank Statement To Internal Account Register
Checking each payment and deposit on your register and matching it to the bank statement
Review Outgoing and Incoming Funds
Subtracting checks, ATM transactions, and other charges from the bank statement balance. Find, record, and resolve any credits not added to the listed balance on the bank statement or internal records
Look for Bank Errors
Bank errors aren’t common but they can occur. Contact your bank immediately if a potential bank error is spotted
Triple Check Balances
Finally, make sure balances are equal and your statement balance is reflected in your internal records. Discrepancies should be recorded. The additional schedule should detail any differences between your internal books and bank account
What If Something Doesn’t Match?
When small business accounting issues arise it can be panic-inducing.
Small business owners like you trust us with bank reconciliation and other small business bookkeeping responsibilities because we can guarantee the integrity and accuracy of all financial statements, books, and balances.
We know that time is money which is exactly why we commit ourselves to take this burden off of your shoulders.