When it comes to bookkeeping for small businesses, bank reconciliation is a very important aspect for any company. Reconciling your bank statement involves comparing your business transactions and balances with the bank’s transactions and balances.
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:
1. 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.
2. Confirms Accuracy of Financial Statements
Confirms that your financial statement matches that of the bank. Maybe the bank made a mistake. Rare but it happen.
3. Accurate Tax Reporting
Reconciling your bank statement is essential for you to generate a correct tax return.
4. Enables you to monitor cash flow.
5. Spotlights any irregularities between your financial statement and bank statement such as an outstanding check or electronic transfers.
6. Controls theft. It could prevent employees or other people from stealing from your company.
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 not be caught if we didn’t 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 for errors and fix them quickly.
The correct way to reconcile a bank or credit card account can be found in our blog.