Have you ever heard of or had reasons to pay attention to bank reconciliation? Chances are much less. However, entrepreneurs and the owners of startups & new businesses must learn about it quickly. Account management is now highly complex for a registered organization and sole traders as well. Bank reconciliation can be a crucial part of maintaining and managing business accounts.
Bank Reconciliation
Reconciliation is the process of analyzing your financial statements for consistency and accuracy. This bank statement gives the summary of transactions that are brought in and sent out. It is a path for both bookkeepers and business owners to double-check the accuracy of their company’s financial records. This system ensures money recorded as expenses in your business accounts matches the actual money you have spent.
Comparing a business account against their corresponding bank statements must be done to resolve differences if any. Bank reconciliation of your books is a critical statement because it identifies any errors, inefficiencies & frauds present in cash and bank statements. In case of any variation in accounts, they must be solved as soon as possible. If not resolved quickly there are high chances that it might affect the financial health and integrity of your business.
Purpose of Bank Reconciliation
Bank reconciliation is those that can verify the accuracy of financial data by cleaning up any errors and reviewing your books regularly. Manual bookkeeping being error-prone, bank reconciliation helps in visualizing any irregularities in payment. It also provides an accurate assessment of your business state which can make your company stay top in its performance. Bank reconciliation can help in discovering the tax-deductible expenses.
It is noteworthy that myBooks cloud-based accounting software helps you with connecting and pulling transaction data directly from the bank. Our financial software will be a huge timesaver by replacing the training for a bookkeeper to avoid errors.
For a successful business, practicing financial discipline and recording ledger integrity will be the core components. So, keeping up with the records of a company’s financial transactions is important. We are already systems in place for you to outsource your needs. Accounting can be just got effortless with us.
Reconciling your accounts regularly is critical for maintaining financial integrity in long term. Before it’s too late, your business can catch on errors with this. Also, it prevents your business from landing in inaccurate reporting. Most importantly they help your business in controlling its financial resources.
Why bank reconciliation?
Bank reconciliation can minimize errors in a financial statement, catch fraud activities, track & manage transactions, and finally, it saves money. A few standard methods to reconcile your accounts are double entry reconciliation and account conversion. Put an end to manual uploads by syncing your tide account to myBooks software. Set up in seconds with automatic feed and zero manual uploads.
Few common reconciliation mistakes the business owners commit
Here are some of the most common bank reconciliation mistakes that business owners tends to commit.
- Incorrect cheque entries with outstanding cheques for too long & wrong cheque
- Ignoring small amounts of cash inflows & outflows in internal records of a company
- Transposition Errors
Bant Reconciliation Journal entries
What are Journal Entries in a Bank Reconciliation?
In bank reconciliation, organizations prepare journal entries when there is an adjustment to any of the balances per book. These types of adjustments result from items occurring on the bank statement which is not recorded in the organization’s general ledger accounts.
Journal entries examples in bank reconciliation
Here we have listed some of the most common adjustments to the balance per books
- Earned bank interest
- Electronic payments from sellers or others
- Loan compensations or payments
- Bank service charges or fees for managing your accounts, payments for returned checks, check to print, etc,
- Deposited customer checks returned due to inadequate funds
All the mentioned above adjustments must regularly comply with all your bank accounts. Through this process, all your business records will be correct
Bank Reconciliation Journal Entries Process
When the respective item in the bank statement failed to appear on the organization’s general ledger account, you must make the journal entries for bank reconciliation.
Process to Complete Bank Reconciliation
Make sure to complete the bank reconciliation process every month.
- Get the bank records
- Collect all your company records
- Find the starting point
- From the bank, review all your company’s deposits & withdrawals
- Examine both the book’s income and expense
- Bank statement adjustments
- End balance comparison
Refer here to explore the complete bank reconciliation process in detail.
Some of the common bank reconciliation mistakes to avoid
For every business, preparing bank reconciliation is one of the vital parts of bookkeeping. Whether you are a small business owner managing your books on your own or collaborating with the bookkeeping consulting company or using the accounting software, bank reconcilition is the “must do” process for every businessers.
Type of Errors to Bypass While Reconciling the Bank Accounts
Here we have listed some of the most common bank reconciliation to avoid when you perform bank reconciliation.
Potential errors in the manual cashbook
One of the common errors is, that if you’re using the manual spreadsheet or cashbook, it might not be accurately sum up. Due to this, there exist the possibility to receive it inaccurate whenever you tend to add the payment columns or invoices using the calculator.
Likewise, when you are utilizing the spreadsheet, you might make mistakes in summation formulas, which gives you inaccurate output.
Omission errors
The next type of error you make on bank reconciliation is an omission error. It occurs while accomplishing the bank account reconciliation.
For an instant, you might write a check but disgarded to enter it in the respective cashbook. Likewise, not updating all the standing orders to straight debits in the respective cashbooks is a kind of omission error.
To avoid these types of errors, make sure to mark those bank statements in the cashbook transaction entries.
Failing to include invoices in the cashbook
Related to the above state, failing to include invoices in the cashbook, is a common error. Make sure to sit at a place where you have no distraction and focusing on the bank reconciliation completely may prevent some of the errors.
Customer allocation errors
It is important to have accurate bank reconciliation for both you and your customer. There are possibilities that you might inspect the same number in the transaction but your customer might attach a different number.
For example, you inspected for a $1200 payment in your bank reconciliation from Laura Rove, when its actual name is Lara Rove. These types of errors are difficult to find in the process of bank reconciliation. To resolve this issue, ensure when your customer making payments.
FAQ’s
What is financial integrity?
Financial integrity is nothing but, making all your business financial reports accurate, constant, and accomplished.
On bank reconciliation, what items are included in the balance per bank?
The list of items in balance per bank on bank reconciliation is,
- Deposits in transit – hold the checks and cash which is acquired by an organization, as of the bank statement date, but are not deposited on time for them to occur on the bank statement
- Bank errors – resulted in lots of withdrawals from the bank account or very small added to the bank account.
What is bank reconciliation?
In every organization, bank reconciliation is considered to be one of the important processes in accounting. The bank reconciliation is nothing but matching the bank statement with the respective organization’s transactions which are recorded in the general ledger. Creating effective bank reconciliation statements assists businesses to avoid potential errors in either bookkeeping or business transactions.
How to Journalize Entries From a Bank Reconciliation?
As discussed above, bank reconciliation is a significant part to make sure that all your business financial records are right. Based on the accounting principle, bank reconciliation is nothing but a cash control procedure.
