Regular Bank Reconciliations Should Be Routine
How often do you reconcile your company’s internal financial records against your bank statements? Bank reconciliations are an essential internal control procedure that busy owners and managers sometimes overlook or neglect. Here’s why it pays to perform them regularly.
Read Also: Tips For QuickBooks Users: 5 Mistakes To Avoid During Bank Reconciliation
Operational Benefits Of Bank Reconciliations
Weekly or monthly bank reconciliations can improve the accuracy of your company’s financial records. You may uncover errors and omissions, allowing you to take corrective measures before internal problems spiral out of control. Bank reconciliations can also be an effective antifraud control. In addition to revealing fraudulent transactions, bank reconciliations may deter dishonest workers from engaging in criminal activity because they know someone is checking their work. Moreover, bank recs improve accounts receivable management. For instance, if you notice bounced checks and bank overdraft fees when reconciling deposits, you might consider changing the credit terms for certain high-risk customers.Master The Bank Reconciliation Process
Typically, a bank reconciliation statement starts with the cash balance from the bank statement. After adding deposits in transit and subtracting outstanding checks, you’ll arrive at the adjusted bank balance. In other words, you’re adjusting the bank balance for transactions entered in the company’s books but not yet posted to the bank account. Next, reference the checking account balance from the company’s accounting records. You’ll arrive at the adjusted book balance after adding interest income and subtracting bank fees. The bank has posted these transactions to the account, but they aren’t yet recorded in the general ledger. The adjusted bank balance should equal the adjusted book balance. If not, you’ll need to determine the source(s) of the discrepancy.Automation Tools Are Available
Accounting software dramatically simplifies the bank reconciliation process by automating much of the matching and reporting. However, it’s not entirely hands-off. Regular review and manual adjustments may still be necessary to ensure accuracy and address discrepancies. For example, manual review is often necessary for certain transactions that may be unrecognizable due to:- Discrepancies in dates, amounts, or descriptions
- Bank errors
- Duplicate transactions
- Adjustments for such items as bank fees, interest income, or manual journal entries
