Reconciling your bank account can be a boring way to spend your time. Every month, it takes hours to match each line of a bank statement to a transaction. Also, reconciling your bank account by hand can be hard to do correctly and cause more problems than it solves.
But bank reconciliations can keep a business from spending too much money or becoming a fraud victim. Bank reconciliation is an essential part of managing money well.
This article will explain bank reconciliation, why it’s essential, and how Countick saves you time.
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what exactly is bank reconciliation?
Bank reconciliation compares the balance on a company’s monthly bank statement to the balance of its cash account in the general ledger, also called the “book balance,” for the same month.
When the book balance and the bank balance are the same, the books are said to be in sync. This helps companies find mistakes or strange things going on with accounts.
Even though there are often differences between the bank balance and the cash account balance, they must be fixed. So bank reconciliation comes into play.
why is it important to match your bank’s records?
Monthly bank reconciliations are a great way to find and fix potential trouble spots, such as unusual activity, poor accounting practices, and one-time mistakes. Bank reconciliations can keep you from losing money because of these problems.
Businesses are protected in different ways by regularly reconciling their bank accounts:
taking care of cash
Bank reconciliations are the best way to find mistakes in the bank that could hurt the business if they aren’t caught. Reconciliations can show, for example, if a worker was charged twice for a conference ticket or if you got two bills for the same equipment. Even though these mistakes may not be on purpose, they can add up.
Small mistakes like these could cause a business to have less money in the bank than expected. If the business tries to make a payment that it can’t pay for, it will get hit with overdraft fees and checks that need clarification.
fraud prevention
The bank reconciliation is an excellent place to find out if someone changed a check or paid an employee too much. Some warning signs include needing deposits, withdrawals, transfers that don’t make sense, duplicated or changed checks, and Fraudulent checks.
Fraud detection is significant for new businesses. Harvard Business Review ran controlled experiments with purchasers who were more likely to try to deceive startup employees and founders than similar employees at established companies. Startups need to be extra careful about fraud, and reconciling their bank accounts is one way to do that.
financial management
If you don’t reconcile your bank account, it can lead to long-term mistakes in managing your money. The three most important financial statements are the balance sheet, cash flow, and income statement. They all depend on the book and bank balances being in sync. Business owners might be basing their financial plans and decisions on sufficient data if they do.
So, the first thing a bookkeeper or accountant will do every month is to reconcile the bank accounts. “At its core, bank reconciliation ensures we have a full record of all the transactions a customer made or received during that month,” says Jess Mersten, the bookkeeper at Countick. “Now that we’ve done the bank reconciliation, we can do all the other bookkeeping work correctly, like classifying expenses, keeping track of bills that are still due, and managing invoices that come in.”
process improvement on the inside
Bank reconciliations can show where internal processes aren’t up to par. For example, errors in recording invoices and payments from month to month show that Accounts Receivable processing could be better. Systemic problems like this can mean that your business loses track of transactions and needs help explaining where the money came from, which can be a big problem when it’s time to pay taxes.
If you see the same mistakes, set up systems to improve the bookkeeping process when you do the bank reconciliation. At Countick, we offer a hybrid bookkeeping service that uses human knowledge and powerful software to help businesses avoid mistakes and run better.
Find out how to hire an exemplary bookkeeping service for your business.
why is bank reconciliation hard for business owners?
Reconciling bank accounts can help improve internal systems, keep cash flow smooth, and even stop fraud. So, if daily bank reconciliations are so helpful, why don’t small business owners do them every day?
Because balancing your bank account by hand is tedious and takes a lot of time.
discrepancies
Many things can cause a difference between the bank balance and the cash account balance:
- Payments made at the end of one month might not appear on the bank statement until the next month.
- Unexpected bank fees are being charged, but they haven’t been written down yet.
- Checks were written to creditors, but the payments haven’t been made yet.
- Deposits are still on their way to the bank account and haven’t arrived yet.
- The books and bank transactions may have mistakes.
Trying to figure out what went wrong is hard enough. Another problem is that it’s hard to know how to fix them. During the bank reconciliation, for example, deposits that are still in the mail need to be added to the total bank balance, while incidental bank fees need to be taken out of the book balance.
spending time on
The process will always take time, even if business owners know how to find and fix mistakes. Most businesses make hundreds of monthly payments and deposits even when they are just starting. They usually have more than one bank account and use services like PayPal and Stripe to get paid.
If a business owner compares each transaction in the cash account to each transaction on the bank statement to look for mistakes, they will waste hours every month. That time could be better used, especially for the founders of early-stage startups whose primary goal is to grow their businesses.
Not surprisingly, a process that is so detailed and takes so long leaves a lot of room for mistakes. People working alone are more likely to mess up line-by-line transactions or give them the wrong name. Even companies that use accounting software may find that their software and bank need to work better together. If your software makes a mistake or doesn’t pull in all the bank transactions it should, you’ll have to find and fix the mistakes by hand.
how Countick automatically balances your bank
The Countick is a new kind of bookkeeping service that makes bank reconciliation less of a pain. With Countick, you get a bookkeeper with a lot of experience and custom software tools to help them do their job. This means that the parts of bookkeeping that are easy to mess up because they are repeated are taken care of automatically.
bank reconciliation builds a solid financial foundation
It might seem like much work to match up your bank accounts. But regular bank reconciliation is integral to running a good business with money.
Reconciliation lets you see where your business spends money, where fraud might happen, and if small mistakes at the bank are hurting profits. You can efficiently finish the reconciliation process and get back to running your business if you have a team of bookkeepers and technology on your side.
Need help getting your startup’s bookkeeping in order? Let Countick take care of that so you can focus on what’s essential: ensuring your business does well.
