A bank reconciliation identifies and explains the differences between the entries in your accounting system and the transactions listed on your bank statement. It may seem like a mundane task but here are some reasons why it is important to perform and keep bank reconciliations up to date:?
- Catch errors in a timely manner. Human error in capturing entries is common and easily rectified. However if mistakes are undetected month after month, it could snowball until you are left with a balance hundreds or even thousands off from your bank balance.?
- Avoid surprises. When bank statements are reconciled each month, any cheques which haven’t cleared stand out and can be investigated. If a payment is lost in the mail, its better to realise it while there is still time to reissue the cheque and avoid any late fees.?
- Verify cash flow. Small business owners typically have lower amounts of working capital so it is important that they remain vigilant of their company’s cash flow position.?
- Save money. By reconciling your statements, you can identify duplicate payments, subscriptions you meant to cancel or card fees you may not realise you were being charged.?
- Prevent fraud. When bank statements are not monitored and reconciled, the potential for undetected loss is high. Not all employees are honest, and you may not realise money is missing for some time. Reconciling your bank statements helps you to prevent such losses and detect a potential problem for investigation.?
A solid monthly reconciliation process is an effective tool for business owners to both identify problems and maintain a clear understanding of their financial position. Talk to HLB Berman Fisher about implementing this beneficial procedure in your business today.?
