Financial management and accounting are two critical aspects that every small business has to manage expertly and lay a strong foundation. At Back Office Accountants we not only provide back-office accounting services but also make efforts to improve awareness on key aspects of accounting. This week, we focus on Bank Reconciliation which is a crucial internal control tool for cash accountability, fraud prevention and cash flow tracking in a business.
Having worked as a back-office accounting firm providing Bank & Credit Card Reconciliation Services to all types of businesses we think every business must be aware of a few pointers about Bank Reconciliation to improve accounting and financial performance.
So in this blog, we help you understand its importance and list out 4 key pointers we think every start-up and small business must know about bank reconciliation. Read on:
Importance of Bank Reconciliation:
A Bank Reconciliation Report is the report that compares the cash balance on the company’s balance sheet to the respective cash balance reported on the bank statement of the company. Both balances almost always vary, due to a variety of reasons – outstanding checks, deposits in transit, interests, fees and the most important and yet the reason of all – financial discrepancies or fraud.
Though bank and credit card reconciliations are used as internal control tools primarily to detect fraud and prevent financial discrepancies there are many benefits of this essential accounting procedure, which are as follows:
- Detects and avoids accounting errors: Accounting is a game of numbers and mistakes do happen – calculation errors, lost checks, missed payments, double payments & more. Reconciling your bank statement with your books can shed light and detect these accounting errors. At times even bank can commit data entry mistakes which can easily be rectified with reconciliation.
- Sheds light on income fluctuations: Consistent and periodic bank reconciliation makes you aware of your income fluctuations that may have missed your radar. This awareness will keep you in good stead when it comes to potential investments and expenditures.
- Accuracy of balance prevents potential problems: With bank reconciliation you exactly know your balance which makes it easy to avoid over-drafting, bouncing checks, bank fines and errors. With reconciliation, you have better visibility of your cash flow and this can help you evaluate your strategies to improve the flow by tweaking Accounts Payable, Accounts Receivable or other key accounting functions.
- Tracking discrepancies in fee and interests: Banks do commit mistakes. The incidence of charging interest rates and miscellaneous fees is common and most of the times they go undetected if not for bank reconciliation.
- Detects and prevents fraud: The most important benefit of bank and credit card reconciliation is its ability to detect fraud and prevent discrepancies. As an internal control tool, Reconciliation helps you detect these red flags and devise effective strategies to prevent them from happening again.
What Every Business Must Know About Bank Reconciliation:
- Always separate the duties during reconciliation: The whole point of reconciliation is to independently compare and verify the veracity of the transactions, identify the mistakes errors and catch fraud. And this can only happen when different individuals handle different duties along the accounting process. For example, different individuals must handle bookkeeping and reconciliation for veracity.
- Frequent reconciliation for better rewards: Though monthly and quarterly reconciliation is common, increasing the frequency of your resolution is proven to be more rewarding for businesses. Frequent reconciliation using online account access can give you greater visibility on your cash flow, helps you promptly catch errors and track your KPIs better for improved performance. If frequent reconciliation is too much a burden for your resources you can seek help with Bank and Credit Card Reconciliation Services from Back Office Accountants.
- QuickBooks can help reconcile your accounts: Conventional reconciliation is a menial process with all the tiny balance matching which fortunately is not the only way now. You can quickly and frequently reconcile using QuickBooks.
- Accurate & consistent reconciliation is the key: Accurate and consistent reconciliation sheds light on income fluctuations, prevents potential accounting problems and plays a key role in fraud prevention. But most business either due to lack of time, expertise or resources clock only one among the two – if they are consistent they are not accurate, if they are accurate they are not consistent.
If you are a business that is facing a similar problem you need the help of a remote accounting firm like Back Office Accountants which can get your reconciliations done for you accurately, efficiently and affordably. For Outsourced Bank and Credit Card Reconciliation Services, you can contact us here: https://www.backofficeaccountants.com/