What You Need to Know About Bank Reconciliations

When you hear the words “bank reconciliation,” what comes to mind? If it is a mental image of two bank managers shaking hands and coming to an agreement, you are probably not an accountant! If you realize that it is the process of double-checking company and bank records, chances are that you are either an accountant or you have some degree of accounting knowledge. Bank reconciliations are  a crucial part of the financial flow of any given business, and it’s important to know what they are. If you want to ensure successful cash flow in your business and keep your money from going to waste, here’s what you need to know:

What is bank reconciliation?

In a nutshell, bank reconciliation is the process of matching the balances in the company’s accounting records and the corresponding information on a bank statement. The goal of this process is to determine the differences between these two records (accounting records and bank statements). If there are differences, the next step entails making changes to the accounting records as appropriate.

Why is bank reconciliation necessary?

Now that you know what a bank reconciliation is, you may wonder how crucial the process is to the overall financial health of a business, be it a small shop or an international corporation. To further expound, here are three primary roles of bank reconciliations for your business:

●     Business As Is - Bookkeeping is a reflection of your business finances as is. Bank accounts can only back-up the financial flow of your company. Should there be any discrepancies, your company’s money may be going somewhere that you aren’t aware of.

●     Cash-flow Tracking - In any business, cash flow management is a must. Reconciling your bank statements with your bookkeeping records ensures the proper flow of your finances. Any discrepancies will raise a red flag.

●     Fraud Detection - As mentioned earlier, if you notice a discrepancy between your bank statement and your bookkeeping records, that could be an indication of fraudulent transactions. With bank reconciliation, you will be able to determine who made a transaction and where and when it was made.

●     Bank-Error Monitoring - Bank errors do happen, but rarely. When you have consistent and up-to-date bookkeeping records, however, you will be able to know in an instant if a bank error was committed. Through bank reconciliation, you will be able to address the discrepancy immediately and seek a correction from the bank.

How is bank reconciliation done?

Here’s what you need to do to reconcile your bank account and bookkeeping records:

●     Check the transactions between your bank account and bookkeeping record.

●     Find the transactions showing a discrepancy between what was recorded in your book and what was reflected on the bank account.

●     Then, record what you did to match the balances.

It’s important to ensure that bookkeeping is done accurately and transactions are properly recorded. This is important for the bank reconciliation to work. Therefore, it is important that your records are always up to date and that they are backed up with proof such as receipts and statements. Otherwise, it’s hard to track the discrepancy and make the appropriate changes.

Totally Booked offers bookkeeping by QuickBooks Certified ProAdvisors based out of NYC. Get in touch today to see how we can help!

Alejandro Tavera