Entrepreneurs, small business owners, and CEOs of large businesses are all in charge of keeping an eye on the financial health of their companies. From bank accounts to accounts payable ledgers and accounts receivable reports, every statement must be using actual figures that correctly reflect the underlying company activity. These figures by businesses to create operational budgets, apply for loans, and pay employees. To establish correct financials, a company must reconcile each ledger account. And there are many forms of reconciliation, including bank account reconciliation.
Bank reconciliation is ascertaining the exact amount of money in your company’s active checking account at any one time. The cornerstone for an accurate, up-to-date daily checking account balance is posting every activity, such as deposits and cheques issued. End-of-month reconciliation is a procedure for ensuring that invoices and contract payments have the proper ledgers.
Account reconciliation is the act of comparing internal financial data to monthly statements from external sources. Knowing how to reconcile your accounts effectively is critical for your company’s financial health. It aids in the detection of any mistakes, inconsistencies, or fraud. If you don’t use accounting software, your financial transactions will display on your paper, credit card statements, and bank statements. Your transactions will be logged in your accounting software’s account register if you use it to issue batches of cheques each time the firm pays invoices.
Comparing transactions and balances is crucial because it helps prevent overdrafts on cash accounts. Also, it detects fraudulent or overpriced credit card transactions. This also explains timing inconsistencies, and reveals other harmful activities like theft or erroneously reported income and spending entries. It keeps transactions error-free and helps uncover inappropriate spending and problems like embezzlement before they spiral out of control, saving your organization money on overdraft fees.
Your accountant will be able to provide dependable, accurate, and high-quality financial statements by reconciling accounts and comparing transactions. As your company’s balance sheet includes all money spent—whether in cash, credit, or loans—and all assets acquired with those funds, also the integrity of the balance sheet is heavily reliant on proper financial account reconciliation.
It saves you a great deal of time when you utilize accounting software to balance your accounts. It’s because the program handles the majority of the work for you. The procedure will still need human intervention to catch some transactions that may have never entered the accounting system, such as cash stolen from a petty cash box. These five procedures will assist you in making sure that all of your money.
Check off each payment and deposit register that corresponds amount on the statement by going over it again. Moreover, keep track of any transactions on your bank account for which you do not have additional supporting documentation.
Whether it’s cheques, ATM transactions, take these things out of the bank statement amount to arrive at the final balance. Also, charges on your bank statement that you have not yet recorded in your internal records. Uncleared cheques, internally recorded auto-payments that have not yet cleared the bank account are all things to check for while dealing with your bank.
Check the bank’s records for any deposits or account credits that have not yet been reported and add them to the statement balance. If your bank records money deposits in your internal books, you must make the necessary entries. Further, if you have an interest-bearing account and are reconciling your accounts a few weeks after the statement date, you may need to include interest and your other charges.
Bank mistakes are rare, but when they do occur, the appropriate amount must be added to or deducted from your account balance. And you must notify the bank as soon as possible to report the error.
The sum on your bank statement should now match the balance on your accounting records. Some banks may need you to produce a supporting schedule that details the differences between your internal documents and bank account reconciliations. Moreover, it is dependent on the number of discrepancies that you have. Your accountant will be able to provide dependable, accurate, and high-quality financial statements by reconciling accounts and comparing transactions.
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