If everything in your business checking account does not correspond to the listed transactions, you must check your business records to determine where you made mistakes. This process is called bank reconciliations.
In this quick guide, we'll tell you everything you need to know about bank reconciliation and why you might possibly need it.
What Is Bank Reconciliation?
It is the process in which you check your business checking account transactions for accuracy and reconcile them to the transactions listed by your bank.
To do this, you'll need to first use checks, cash, ATM, and debit transactions to determine the difference between the account balance and the total of all transactions through the business checking account. It's important to understand the timing of these transactions to help get everything right.
For example, your May credit card statement may total $500. If you don't have any other information, you could assume that you have $500 in the business checking account when really you only have $350 because of certain debit.
Benefits of Bank Reconciliation
1) Find and Fix Errors
Cross-referencing the numbers on your business checking account statement with those in your business records can help you find errors and fix them.
For example, you may have accidentally written a check to cover your business credit card bill. If you forgot to include that check in the balance sheet, then you would have a bank reconciliation issue.
2) Spots Fraudulent Payments
Using bank reconciliation can help spot fraudulent payments. For example, if you are a small business owner on a tight budget, you may be tempted to use your business credit card to pay for a personal purchase.
If this happens, the only way to spot the error is through bank reconciliation.
3) Track Profitability
Using bank reconciliation to check your business accounts can help you measure your profitability over time. For example, if you are selling your products online, you can monitor your online bank account to track your profitability with ease.
Many businesses use accounting software to automatically pull the data from their business checking account, process it and then output the information in a report for them to review.
The information in this report is helpful for business owners to check the numbers in their business checking account to see their profitability.
How Does Bank Reconciliation Work?
When you start a business, you may need to use more than one bank account. For example, you may use a business checking account and business savings account to keep your operations running.
You'll deposit cash from your business into the business checking account and then deposit checks from customers into the business savings account. Then, you'll transfer money from your business checking account to your business savings account to record your business profit.
It's a good idea to start checking your business bank account reconciliation on a regular basis, such as once every few weeks or once a month, depending on your business needs.
Important that you check the numbers in your business checking account for accuracy. To do this, you must check your bank account reconciliation to track and trace your business transactions.
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