Bank account reconciliation is the very first step towards streamlining your finances. Are you searching for ways to safeguard your company’s assets? There are ways to ensure that your financial statements comply with regulatory requirements and are accurate. Small to medium-sized businesses with specialized methods of internal controls over Financial Reporting (ICFR) can enhance the integrity of their financial records by frequently performing cost-efficient internal controls that reduce risk.
What is account reconciliation?
Reconciling means comparing the data sets of financial records generally bank financial account statements or accounting sheets against monthly statements from various relevant sources making sure that the data match up. The various external documents can be bank statements, credit card statements, or financial data from other financial institutions.
Knowing the way to reconcile your accounts is crucial for the financial health of your business because it helps to detect any errors, discrepancies, or fraud.
Why you ought to Reconcile Your Accounts
Managing business finances needs avoidance of overdrafts on cash accounts, catching fraudulent or overcharged credit card transactions, highlighting theft activities, or incorrectly recorded financial gain and expense entries. Comparing transactions and balances on a regular basis is very important as a result of it. This protects the company from paying draft fees, keeps transactions error-free, and helps catch improper disbursement and problems such as embezzlement before they get out of the control of the management.
Reconciling accounts and comparison transactions conjointly helps your businessperson manufacture reliable, accurate, and high-quality monetary statements. as a result of your company record reflecting all cash spent—whether money, credit, or loans—and all assets purchased with those funds, the accuracy of the record powerfully depends on the correct reconciliation of your company’s monetary accounts.
Publicly command corporations should keep their accounts systematically reconciled or risk being punished by freelance auditors. Several corporations have systems for maintaining payment receipts, account statements, and alternative knowledge necessary to document and support account reconciliations.
The Reconciliation method
When you use accounting code to reconcile accounts, the code will do most of the work for you, saving you a decent deal of your time. However, the method still wants human involvement to capture sure transactions which will have not entered the method of accounting, like money purloined from a “petty cash” box. These 5 steps can assist you to make certain all of your cash is accounted for.
Compare your internal account register to your statement. undergo and tick every payment and deposit on your register that matches the statement. build a note of all transactions on your statement that you do not have the other proof, like a payment receipt or record.
Check that all outgoing funds are mirrored in each of your internal records and your checking account. whether or not it’s checks, ATM transactions, or alternative charges, deduct these things from the statement balance. Note charges on your statement that you simply haven’t captured in your internal records. Charges to observe for embrace unimproved checks, internally recorded auto-payments that haven’t cleared the checking account, check-printing fees, ATM service charges, and alternative bank charges like short funds (NSF), overdrafts, or over-limit fees.
Check that all incoming funds are mirrored in each of your internal records and your bank account: notice any deposits and account credits that haven’t nonetheless been recorded by the bank and add these to the statement balance. If the bank shows cash deposits not mirrored in your internal books, build the entries. If you have got Associate in Nursing fixed cost account and you’re adaptative many weeks when the statement date, you’ll get to add interest further.
Check for bank errors: Bank errors do not occur fairly often, however, if they are doing, the correct quantity must be more or subtracted from your account balance, and you ought to contact the bank forthwith to report the error.
Make sure the balances square measure accurate: Your statement balance ought to currently equal the balance in your records. betting on the number of discrepancies, you’ll get to produce a supporting schedule that details the variations between your internal books and bank accounts.