When it comes to bookkeeping for small businesses, bank reconciliation is an important aspect to make sure your financial information is correct. Reconciling your bank statement involves comparing your business transactions and balances with the bank’s transactions and balances. Too often when taking on a new client, we find the bank reconciliation has not been done for years. The result is duplicate or missing transactions that distort your true earnings.
The main goal of reconciling your bank statement is to make sure that the recorded balance of your business and the recorded balance of the bank match up. Here are six reasons why you need to reconcile your bank statement each month:
- Validate Data Entry: Reconciling your bank statement enables you to see if there are any irregularities, such as entering wrong amounts, duplicating entries, and other data entry errors.
- Confirms Accuracy of Financial Statements: Does your financial statement match the bank? Maybe the bank made a mistake? It's rare but it happens.
- Accurate Tax Reporting: Reconciling your bank statement is essential for you to generate a correct tax return.
- Enables You to Monitor Cash Flow: is the flow of money in and out of your company telling you anything you need to adjust in your budget or your financial planning?
- Identify Irregularities: Reconciliation spotlights any irregularities between your financial statement and bank statement, such as an outstanding check or electronic transfer.
- Controls theft: It could prevent employees or other people from stealing from your company.
Check out this blog post on how to prevent theft/fraud and look out for scams
Clients often ask me when I use Bank Feeds why do I have to reconcile to the bank statement? We often find omissions in a Bank Feed that would are caught when we reconcile to the statements at the end of each month. When you use the Bank Feed (which we recommend), reconciliation takes seconds. When finished with the bank reconciliation, examine the unreconciled transactions, immediately, for errors and fix them quickly.
The correct way to reconcile a bank or credit card account can be found in our blog.
If you have any questions or need help reconciling your accounts, give us a call.
