What happens if you don’t reconcile? Often, we see balances in QuickBooks that are substantially different from the bank when we review a new client’s financial records. Reconciliation eliminates accidental double entries and allows you to easily see uncashed checks.
Let’s face it: As small business owners, we are busy, things change, and we don’t remember exactly what happened because there are so many transactions. Making sure your cash balance is accurate falls through the cracks or you know that the balance is wrong but don’t know how to fix it.
Here are a couple examples of mistakes we see in companies’ QBs bank balances that accumulate for years:
Not having accurate cash balances can lead to several unexpected outcomes:
Incorrect balances or discrepancies in transactions can lead to unexpected cash shortfalls, bounced checks and overdraft fees. Completing bank reconciliations monthly can save you time and relieve stress.
When looking ahead at future growth, you need to have an accurate record of the past.
Regularly reviewing and cross-referencing the bank accounts to QBs can help you find unauthorized withdrawals, stolen checks or transactions posted in error much sooner. There are even tools the bank can provide to help you prevent fraudulent or erroneous items from posting and clearing the account.
If you are subject to audits, the auditors want to see your bank reconciliations. Many accountants want to see them, too. Potential audits require very granular procedures and testing across all your accounting records.
Unaccounted expenses or income can lead to incorrect tax calculations since these items flow through to your P&L Statement and Balance Sheet. Make sure your chart of accounts accurately reflects the activity in your business by reconciling your bank account activity.
We recommend performing bank reconciliations on all your bank statements and credit card accounts at least once a month so the information is still fresh in your mind. After the reconciliation, look at the uncleared items. Investigate amounts that look wrong. Now is the time to make sure there are not any duplicate or incorrect entries. Make the adjustment.
You can delete duplicate entries until you have sent your records to your accountant. If your taxes are done and there are mistakes, ask your accountant what needs to be done to make your financial information agree with the bank.
A review of your accounts can prevent unforeseen losses and fraud, as well as set yourself up for better planning and forecasting.
Comparing your bank reconciliations against your P&L statement and your cash flow statements can provide valuable insight to prepare for growth spurts and lean times. If you need help determining what your chart of accounts should look like, assessing the accuracy of your bank reconciliation, or determining if YOU are profitable, we can help! We make QuickBooks work for you!