In this blog, we will cover what a bank reconciliation is, its purpose, and why it is an essential practice for you to complete for your company, as well as the process you should follow.
What does Bank Reconciliation mean?
Bank reconciliation is the process of comparing a company’s bank account records with its corresponding bank statements to ensure they match, so that you can identify any discrepancies.
The purpose of a bank reconciliation
Bank reconciliation is a crucial accounting practice that helps businesses verify the accuracy of their financial records and can highlight errors, fraud, or other issues.
Why is it important?
Bank reconciliation is vital for maintaining accurate financial records, detecting errors or fraud and ensuring proper cash flow management.
How does Bank Reconciliation work?
To complete a bank reconciliation of your company’s accounts, you will need to follow the steps below:
Common issues found during bank reconciliation
When completing your company’s bank reconciliation, you may face some issues. However, don’t worry, these issues are pretty common and can usually be resolved.
Some issues you may come across are:
- Duplicate transactions
- Bank charges or interest are not recorded
- Timing differences
- Fraudulent transactions
Bank reconciliation tools and software
Thanks to the digital developments in the world of accounting, you now have access to a variety of different software that will give you the tools to not only speed up the bank reconciliation process but also reduce the number of errors. You can find these tools in software such as Xero, QuickBooks, and FreeAgent.
Best practices for bank reconciliation
The best practice for bank reconciliation is to stay on top of your transactions. We recommend a company with a high volume of transactions to reconcile daily. Whereas, for a company with a low volume, such as 10 transactions to reconcile monthly.
How an accountant can help you
Having an accountant, specifically one who utilises digital software and apps, will be able to streamline the bank reconciliation task for you. Streamlining your financial tasks will:
- Reduce the risk of errors.
- Help save you time so you can spend more time on what you enjoy.
- Give you clarity on your company’s finances.
Bank reconciliation is a vital accounting practice that enables companies to maintain accurate financial records. By conducting a bank reconciliation, businesses can verify the accuracy of their financial records and identify errors, fraud, or other issues. Business owners can utilise the skills and knowledge of an accountant to help them save time, gain clarity on the numbers and most importantly, reduce the risk of errors.
If you would like to speak to an accountant about streamlining your company's bank reconciliation process, click here!
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