Small business owners deal with financial balances and transactions to complete everyday processes. When discrepancies appear between your company’s accounts and bank statements, payment history, or budget, the process of bank reconciliation can help rectify the situation.
Running a small business is a challenge, but G&R Bookkeeping Services LLC can help. Contact us today for the help you need.
What Is Bank Reconciliation?
A bank reconciliation refers to the process of comparing your company’s record of business transactions to your company’s official bank statements. This comparison shows any differences that may not appear obvious at first. Through the reconciliation process, you can identify any additional business spending, credits, fees, or payment errors and changes.
How to Perform a Reconciliation
Performing a bank reconciliation for a business requires time and attention, but the process remains fairly simple. Any business owner or employee can follow these simple steps to complete reconciliation:
- Compare transactions and statements: Begin by looking at the bank statements and all records of the business transactions for the designated period and placing them side by side. Go line-by-line to ensure that the purchases, deposits, and fees match on each document and note any discrepancies. These differences may include unmarked deposits or fees and unrecorded processing times.
- Adjust the balances: For each line that shows a different amount, use any unmarked payments or note any fees that you can add to your records to reflect the actual balance in the business account. Some accounting software may have a bank reconciliation formula to use to balance accounts and cover discrepancies.
- Record any changes or issues: After accounting for changes and differences between the bank statement and accounts, record what changes you made and which payments you used to cover the difference. This ensures that your business can account for all amounts. Bank reconciliation statement rules state that you must detail the deposits, withdrawals, checks, and earnings accounted for during the reconciliation process.
Benefits of Bank Reconciliations
Performing a bank reconciliation report allows you to familiarize yourself with the financial status of the organization. Having an awareness and getting into the routine of analyzing bank statements provides many benefits for better business, such as:
- Monitoring cash flow: The current balances and cash flow of a business can influence buying decisions and transactions. Performing regular reconciliations demonstrates a company’s cash flow, spending, and income.
- Measuring performance: A reconciliation report conveys a business’ earnings and income. This provides a clear picture of the performance and profits of the company and allows for comparisons across multiple periods.
- Handling errors: Individuals who perform reconciliation on a regular basis can identify errors in their statements or records without too much time passing from the transaction. This ensures adequate time to rectify and address any possible mistakes.
- Detecting fraud: Going through statements and performing a bank reconciliation can show any purchases that the business didn’t authorize. Catching these transactions early prevents the effects of fraud and theft.
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