Bank Reconciliation is essential for small businesses because it helps to identify if the funds of the company are in proper shape or not. In Bank Reconciliation, the internal financial records are checked with the bank statement. This helps to identify that if the internal records are matching the bank statement or not. This is a great way to identify fraudulent transactions. Hence, for small businesses, bank reconciliation is a vital source to track their funds. Because even if a small amount of fund gets misplaced, it is a massive loss for a small business.
How do Back Office Accountants help in a bank reconciliation?
To ensure that you get an accurate audit report and bank reconciliation, you should always hire remote accountancy services as they are not biased and will provide a transparent report. To make a make bank reconciliation statement, the cash balances of the business is matched with the bank statement. If the balances match, then it is all good, but in case it does not, then there are some issues within your internal accounting department.
To identify fraudulent transactions, it’s always advisable to outsource your bookkeeping services. This is because in house accountants have greater access to your company information, and this may lead to fraudulent deeds. By hiring external accounting services, you can ensure that all the reports are created without any biases. This is because third party accounting services do not have that much access to your company information as compared to in house accountants.
Steps of how Remote Accountancy Services will help you to reconcile your bank statement
To reconcile your bank statement, the back office accountants will first check your bank statement. Banks will provide a statement where on the credit side all the deposits will show and on the debit side all the withdrawals will be shown. The way a bank keeps a record of each transaction; similarly, businesses have to maintain a cash book. The cash book should include the cash in hand and cash in the bank. These are matched with the bank statement. Typically, a bank sends these statements monthly or at regular intervals.
When these figures are matched and if it does not reconcile then the business will have to figure out the reasons for this type of differences. Now let’s look at the detailed step by step ways of how to reconcile bank statements.
Step 1: Comparing Deposit
The first step while reconciling your accounts are matching your business records with that of the bank statements. Start comparing each and every transaction in both the records. For example, compare all the deposit made, which should reflect on the debit side of your cash book and match it with the credit side of the bank statement. Keep on marking the items which are reflecting both on the bank as well as the cashbook.
Step 2: Adjusting Bank Statements
Once you have matched both the statements, now you need to readjust your bank statement to get the accurate figures. In this step, you will need to deduct outstanding checks, transit deposit and even remove bank errors from the report. If you do not follow this step, then for sure your cashbook and bank statement won’t match.
When we mean deducting outstanding checks, it refers to the amount which was paid to someone in the form of raw cash. Hence, this transaction will be recorded in the cashbook but not in the bank statement as the transaction was made in cash. Thus, if this transaction is not adjusted, then the bank statement will show more funds than cash book.
Similarly, deposits in transits mean that the deposits which were entered in the cashbook but it has not yet reflected in the bank statement. This happens during the last days of the month.
Lastly, you also need to remove errors which are caused by banks while preparing the statement.
Step 3: Adjusting Cash Statements
Similarly, like bank statements, you also need to make adjustments in your cashbook to get an accurate reading. For example, you need to deduct the interest received or the bank overdraft fees. These petty transactions needed to be adjusted in order to get an accurate figure. It is difficult to have an eye for every detail; therefore, you should leave all these works to professionals. Outsource your bookkeeping services to get the desired results.
Step 4: Balance Comparison
After all adjustments, then make the final comparison. If the balances meet then it amazing. But if it does not, then you need to investigate the loophole within your company.
Bank reconciliation is very important to understand the financial position of your business. It is always advisable to hire remote accountancy services to get a transparent and honest audit report.