When it comes to financial management, bank account reconciliation is an absolutely essential component, ensuring that a business’s financial records align with the relevant bank statements.
Not only is it important to keep all your finances in check, it’s almost just as important to maintain accurate records of all financial transactions. That is, for both your own purposes and for regulatory and compliance purposes.
Business bank account reconciliation helps you verify all your business’s financial records by comparing internal company records with monthly bank statements. In doing this, you’ll be able to ensure accuracy and consistency in all reported financial data.
What Makes Bank Account Reconciliation Important?
Bank account reconciliation is all about maintaining your company’s financial health. The process confirms that the cash balances recorded in the business’s financial records match the actual cash in the bank.
It’s all about keeping track of operations. Without conducting regular reconciliation, it becomes possible for errors and discrepancies to creep in and go unnoticed. On a more serious note, it creates the potential for the introduction of fraudulent activities.
These types of issues impact financial decision-making and can lead to really costly mistakes – never mind regulatory and legal issues.
By identifying these discrepancies early, businesses have the opportunity to ensure that everything is always running smoothly. This is incredibly important when it comes to building trust with stakeholders and on a practical level, it makes it significantly easier (and less stressful) to prepare for audits.
How Does Bank Account Reconciliation Work?
There are several important steps involved in bank account reconciliation, and if they’re followed to a T, businesses should be well on their way to maintaining a healthy financial situation.
Collect the Neccessary Documents and Keep Them Safe
One of the most important things you need to do is collect all the relevant financial records and bank statements for the relevant period. But the important thing about doing this is that it’s not a once-off task – it’s an ongoing process.
This includes gathering things like receipts, ledgers and records of all the business’s deposits and withdrawals. Normally, businesses perform financial reconciliation on a monthly basis, but if you have a good process of constantly collecting and keeping track of documents, it’ll be so much easier.
Compare Records and Transactions
Once all the paperwork is in order, it’s time compare every single transaction that listed on the bank statement with those recrded in the company’s internal financial records.
This is, admittedly, an incredibly tedious process, but it’s really important to review every single item, including withdrawals, deposits, checks, fees and transfers.
It’s at this point that businesses can quickly identify any issues or mismatches between bank records and company ledgers.
Look For Discrepancies
It’s totally abnormal to come across discrepancies here and there, and there are several reasons why they may occur. For instance, it could be something like bank fees not reflected i the internal accounts, deposits that haven’t ye cleared or simple errors in the data entry. Of course, it could be a missing transaction which is a little more serious and concerning, but that may also be nothing more than a mistake.
You may find cases in which a check is issued to a vendor but hasn’t been cleared by the bank – this results in a temporary difference in records.
Generally speaking, these issues and discrepancies are categorised into time differences, internal recording errors and bank errors.
Make Adjustments to the Records
Once any discrepancies have been identified, you’ll need to make adjustments accordingly. For instance, things like interest earned, bank fees or anything else not recorded internally needs to be added to company records. Furthermore, if there are any straightforward errors in data entry – which happens from time to time – these should be corrected.
Double Check Adjustments
Once you’ve made the neccessary changes and adjustments, you’ll need to verify that the new balances in the company’s records and the bank statements match up. If they do, then your reconciliation will be complete, but if not, you’ll need to go back through your records to find any discrepancies you may have missed.
