What are bank reconciliations?
A bank reconciliation is checking that your business’ spending is equal to the amount leaving your bank account at the end of a fiscal period. This should be done at the end of each month but could be done more or less frequently depending on the size of the business.
How to do a bank reconciliation?
To perform a bank reconciliation you need to acquire a bank statement as well as your business’ finance records, make sure you are examining the same financial period on both records. The simplest way to determine whether your financial records are accurate is by comparing the opening and closing balance on both records. The opening balance is the amount of money at the start of the financial period and the closing balance is the amount at the end of the financial period. If both opening balances and closing balances match then you can be confident your financial records are accurate. However, the most effective way to make sure your financial records are accurate is not only to compare but to justify each expense. Justifying bank transactions is providing a valid reason for each individual expense. Once each transaction is compared to the bank statement and is given a justification, you can confirm that your financial affairs are in order.
How does your business benefit from Bank Reconciliations?
Performing consistent bank reconciliations can help a business run more efficiently by making sure all your money is being spent effectively. Bank reconciliation can help identify financial errors, which can cause problems for your business. A consistent bank reconciliation schedule can spot out and eventually prevent three main forms of financial errors:
Bank errors
These often occur in the form of removing or adding funds incorrectly. These are comparatively rare and are often sorted by the bank within a few days
Fraud/ Theft
It becomes incredibly difficult for untrustworthy parties to remove funds from your account without you knowing when you perform a consistent bank reconciliation
Double/ Missed payments
These are arguably the most common form of financial errors that performing a bank reconciliation can help prevent. These are most often caused by human error and the earlier they are noticed, the easier it is to fix.
Do you need help with your monthly bank reconciliation, contact +44 (0) 7762657277 for a free thirty-minute consultation?