Any business needs to keep accurate accounting records and bank reconciliation is part of that process. Bank reconciliation is the process of comparing bank statements and reports to your own financial records. During this analysis any inefficiencies, inaccuracies or accounting errors can be reconciled.
While some companies have formal processes, others can simply have a reminder to review and compare their accounting records to the bank statements. The main point is to compare each line item of the bank statement and ensure that it has been recorded in your books. Be sure to review cash balances, deposits, outstanding checks and automatic payments.
Importance of Bank Reconciliation
While reviewing your bank transactions seems like common sense, many business owners think they are too busy to reconcile their bank statements. Bank reconciliation will help identify any issues with your account or individual transactions before they become a bigger problem.
One of the primary reasons to perform a bank reconciliation is to catch any fraud on your account. In this day and age, many business make regular online purchases for supplies and other materials. While ecommerce is more secure than ever, there is still a significant chance that your account could become compromised. Other fraudulent activities such as unauthorized checks, unauthorized transfers and missing deposits can be easily identified with reconciliation.
Another reason to perform a bank reconciliation is to avoid administrative errors and manage cash flow. This process can help prevent bounced checks, excessive bank fees and any bank errors. You will also be able to track when payees have cashed their checks and have A/P follow up if they are taking too long to cash them.
When Should You Reconcile?
At a minimum, you should reconcile your business’ bank accounts on a monthly basis. For companies with a higher number of transactions or are exposed to potential fraud, then more frequent bank reconciliation is recommended. Banks can be very helpful, so contact a Treasury Management official to see if they can help streamline the process.
DataMath can help you make sure your bank accounts are properly reconciled. We have accountants that have the expertise needed to make sure every thing is in balance.