Why do we do bank reconciliations?

She then uses the equipment to complete her first lawn-care project, which pays her $500. For instance, you could have made a deposit in the amount of $850, but your bank has accidently left off a zero, and recognized it as $85, instead. For any kind of similar mistake that could be on the bank’s behalf, you have to get in touch with them to get the error resolved.

Why do we do bank reconciliations?

Compare your personal transaction records to your most recent bank statement. First, make sure that all of the deposits listed on your bank statement are recorded in your personal record. If not, add the missing deposits to your records and your total account balance.

To see your business as it really is

Taking a ‘little and often’ approach to bank reconciliation and keeping on top of it will save your accounting department vast amounts of work at the year end – a time which is busy enough anyway. Companies need to reconcile their accounts to prevent balance sheet errors, check for possible fraud, and avoid adverse opinions from auditors. Companies generally perform balance sheet reconciliations each month, after the books are closed for the prior month. This type of account reconciliation involves reviewing all balance sheet accounts to make sure that transactions were appropriately booked into the correct general ledger account. It may be necessary to adjust some journal entries if they were booked incorrectly. Account reconciliation is particularly useful for explaining any differences between two financial records or account balances.

However, connecting your accounting software to your bank or financial institute does not take the place of doing a month-end bank reconciliation. In this day of electronic banking, many people believe completing a bank reconciliation is no longer necessary. Partners or financiers may require bank bank reconciliation reconciliation statements as part of the funding process, and they are helpful in the case of an audit. After performing a bank reconciliation, it is advised that the document is kept on file like any other financial statement that a business generates and held onto as part of its records.

Bank Reconciliation: How It Works and Why It’s Important?

If you find any errors or omissions, determine what happened to cause the differences and work to fix them in your records. Many companies are realising the benefits of investing in digital finance software and automating key processes, including bank reconciliations. This drives greater efficiency in their business and saves company resources. It also allows finance teams to spend more time on value-add tasks, such as evaluating data to inform company strategy and key decisions. Ideally, you should reconcile your bank account each time you receive a statement from your bank. This is often done at the end of every month, weekly and even at the end of each day by businesses that have a large number of transactions.

For instance, if you haven’t reconciled your bank statements in six months, you’ll need to go back and check six months’ worth of line items. Whether this is a smart decision depends on the volume of transactions and your level of patience. For the most part, how often you reconcile bank statements will depend on your volume of transactions. If you use the accrual system of accounting, you might “debit” your cash account when you finish a project and the client says “the cheque is going in the mail today, I promise! Then when you do your bank reconciliation a month later, you realize that cheque never came, and the money isn’t in your books (even though your bookkeeping shows you got paid).

How often to reconcile bank statements

Some mistakes could adversely affect financial reporting and tax reporting. If your beginning balance in your accounting software isn’t correct, the bank account won’t reconcile. This can happen if you’re reconciling an account for the first time or if it wasn’t properly reconciled last month. Sometimes your current bank account balance is not a true representation of cash available to you, especially if you have transactions that have not settled yet. If you’re not careful, your business checking account could be subject to overdraft fees. One is making a note in your cash book (faster to do, but less detailed), and the other is to prepare a bank reconciliation statement (takes longer, but more detailed).

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