April 04, 2023
For any business, financial records hold a significant position as they show the financial position and results of the operation of the organization. The process of bank reconciliation is a crucial activity that is vital in finance and accounting. Ensuring that the recorded balances of your firm and the bank are in agreement is the primary objective of bank statement reconciliation for small businesses. Bank reconciliation also aids in managing and keeping track of your financial flow. Let’s get to know more about bank reconciliation in detail and how it can be handled efficiently.
Reconciliation is a crucial accounting procedure that ensures the actual amount spent or earned matches the amount leaving or entering an account at the end of a financial period. Reconciling the accounts is a particularly important task for both businesses and individuals due to the opportunity to seek fraudulent activity and prevent financial statement issues. As part of standard accounting practices, reconciliation is often performed on a consistent basis, such as once a month or once every three months.
Reconciliation of bank statements requires comparing the internal financial records to the records that are given by the bank. This procedure is crucial since it helps us to identify any odd transactions brought on by fraud or accounting mistakes. This practice can aid organizations in managing cash flow and identifying any inefficiencies. It's advised to reconcile your bank statements at least once every month. Some companies with large volumes or those in sectors with a high risk of fraud might reconcile their bank statements more frequently.
Due to a variety of reasons, a company's cash balance at its bank and the cash balance recorded in the company's cash book frequently do not match. In order to demonstrate the discrepancy between the cash amount in the company's cash account and the cash balance as indicated by its bank statement, companies are needed to execute bank reconciliation.
The majority of organizations utilize two- or three-column cash books to track all bank account activities. The cash book is deducted each time money is put in the bank in the form of cash, cheques, money orders, or postal orders. In other words, a record is made in the bank column on the cash book's negative side. Similarly to this, an entry is created in the bank column on the credit side of the cash book whenever a check is written to a supplier. A bank statement is the list of transactions that have been made in each account holder's personal account and are kept on file by the bank.
The main distinction between cash book balance and bank statement balance is that the former refers to the cash balance that the company has recorded in its cash book and the latter is the cash balance recorded by the bank in its records.
A clear picture of the cash flow is provided by a bank reconciliation that accounts for all incoming and outgoing transactions which include incoming customer payments, interest, outgoing vendor payments, bank fees, and others on the bank statement. Regular bank reconciliations speed up the financial close by identifying accounting problems.
Bank reconciliation assures:
Additional reasons for firms to balance their bank statements each month include the following:
Finding fraud remains a top priority which we need to focus on when reconciling bank account transactions. It is vital to ensure that the issued valid checks are not copied, altered, or written without permission. Also, we need to be aware of whether there were any unlawful withdrawals or undeposited funds in the account.
Any inconsistencies, including entering incorrect amounts, duplicate entries, balance sheet errors, and other data entry concerns can be seen in bank statement reconciliation.
Although mistakes by banks are uncommon, they can happen. One approach to ensure that your financial statement and your bank's statement match up is by bank statement reconciliation.
Reconciliation of bank statements is required to produce an accurate tax return. Also, it is essential to have a proper financial statement to pay taxes correctly.
Reconciling your bank statements will prevent employees or individuals from stealing you’re your business. Bank reconciliation is also used as an internal controlling tool for preventing fraud activities.
Accoxi is an effective cloud-based accounting software that is capable of handling bulk transactions for bank reconciliation. It also comes with features that help with core accounting, pos enabled billing, easy invoices, and many others which are significant in simplifying accounting tasks in the organizations The interactive dashboards from Accoxi makes it more convenient for everyone to manage these procedures effortlessly. Also, it aids with processing bulk transactions for bank reconciliation.
Small business owners may be ignorant of potential income concerns or deficits if they do not take the time to reconcile their bank statements manually or at least get an overview of the results. The disparities between the accounts and the amounts must be explained if there are any. By comparing the bank statements, it is possible to spot issues before they become major ones. Most significantly, comparing your bank statements enables you to detect fraud early on. It's crucial to remember that consumers have more protections for their bank accounts under federal law than do businesses. Businesses cannot always rely on the bank to cover fraud or inaccuracies in their account. So, it is crucial for them to identify any suspicious or fraudulent behavior as soon as possible. You can avoid losses by reconciling your bank statement, which may also reveal a potential issue with your accounting system.
While handling finances and accounting in businesses, there is a considerable risk of loss that goes unnoticed when bank statements are not checked and reconciled. How about handling all the bank reconciliation procedures in the organization more efficiently? Accoxi is a quality-assured cloud accounting software that can help in managing all bank reconciliation processes and aids in handling accounting tasks smartly.