Bank Reconciliation
Bank reconciliation
A lender account peace statement contrasts with your company’s balance sheet and bank accounts. Usually, the cash balance mentioned on your balance sheet may be matched with the lender assertion. The bank account peace method will make your money records error-free if there are any differences. Now, the question arises, why there might be distinctions between bank statements and financial information? Well, there can be various causes why this happens, including
Ø Your organization has recorded cash and cheques but they are still in transport.
Ø Although checks have been deposited, they have not yet been processed.
Ø The bank has deposited attention into the bank account.
Ø Errors in finance or fraud have been reported.
Ø A consumer lacks the funds necessary for their checks to clear.
Specific accounting software can be used to decrease the chances of facing these types of problems, but it is also a good idea to balance your bank accounts now and then to sustain your business books.
What is the Main Purpose of Bank reconciliation?
If your records and bank account don’t match, you’ll get the most accurate picture of your company’s financial situation. You can ignore common errors, such as fraud or multiple payments.
How do Bank Reconciliation?
Get bank records the bank’s transaction list is what you need. A statement, Internet banking, or having the bank send data directly to your accounting program are all ways to obtain this information. If you have a current and credit card account, you will need both statements.
Gather business records: Retrieve your expenditure and income ledger, which can be in the form of a spreadsheet or maintained through an accounting system. Some accounting software even allows for automated data extraction from scanned bills and receipts.
Identify the starting point: Locate the most recent instance when your financial records and business account balances matched. Use this as the starting point for your reconciliation process.
Verify bank deposits: Review each warranty in your bank account to ensure it corresponds to your recorded income. If any deposits are missing, determine the source, such as a sale, refund, interest, or other transactions, and add them to your records.
Cross-check income in your business books: Compare each deposit listed on your bank statement with the corresponding entry in your business records. Investigate any discrepancies and identify the reasons for missing entries.
Review bank withdrawals: Record all bank withdrawals in your books, including any previously unrecorded bank fees. Make sure that every exit is accounted for and accurately reflected in your financial records.
Match expenditures in your books: Ensure that each entry in your financial records aligns with the withdrawals listed on your bank statement. Take into account factors such as uncleared payments, alternative payment methods, or cash transactions that may result in temporary differences.
Confirm end balance: After reconciling all deposits and withdrawals, verify that your business bank balance matches your financial records. The resulting end balance will serve as the starting point for your next bank account reconciliation.
How often should Bank Reconciliation be done?
Bank reconciliation is an important task in accounting that should be performed regularly to ensure the accuracy of your financial records. It is recommended to reconcile your bank accounts each time you receive a bank statement, which typically occurs every month. However, depending on the transaction volume of your business, more frequent reconciliations, such as daily or weekly, may be necessary to stay on top of your financial situation and reduce the workload.
Why Bank Reconciliation in Accounting is Important?
Bank reconciliation is crucial in accounting because it helps identify and resolve any discrepancies between your business accounts and the bank statement. By comparing the two, you can locate missing transactions, errors, or fraudulent activities. It ensures that all your accounts are in sync, providing you with an accurate financial picture of your business.
What Accounts Need to be Reconciled Monthly?
Reconciling various accounts is important every month. These accounts include accounts payable, credit card transactions, payroll, accounts receivable, subscriptions, fixed assets, and others. By reconciling these accounts against the balance sheet or general ledger, you can detect and rectify any inconsistencies, ensuring that your business books are reliable and up to date.
conclusion
In conclusion, bank reconciliation is a critical process that helps maintain the integrity of your financial records. It is essential to perform regular and accurate reconciliations to identify discrepancies, reduce errors, and have a clear understanding of your business’s financial position. If needed, it is advisable to seek assistance from a trustworthy bookkeeper or accountant to ensure the reconciliation process is handled efficiently.
