Demystifying bank reconciliation for small business
Tracking personal expenses and income every month is a common habit that is ingrained in each one of us.
When the calendar marks 30th/31th of each month, often, it’s natural for us to track our expenses and income for the entire month. While monitoring your transactions, if you come across some peculiar deals, you will quickly escalate the matter to the respective bank officer.
This reconciliation practice is equally applicable to your small business when performing financial housekeeping for your business transactions.
So, let us delve into more detail of the organization’s processes when examining its business transactions.
What is Bank Reconciliation?
In business accounting, bank reconciliation is the procedure that an organization undergoes to compare the company’s internal financial records with its bank accounts.
Theoretically speaking, the bank statement and your business books should both contain the same information. Knowing how to reconcile the accounts accurately is essential to keep your small business’s health in check.
Most of the organization usually perform bank reconciliation every month end. However, if you have a higher volume of transactions daily, it’s recommended that you reconcile your accounts every day.
Why does a business need to perform Bank Reconciliation?
Many organizations practice bank reconciliation to keep track of the company’s cash flow. Cash Flows are all the more important for small businesses.
Here are some of the reasons why you should perform bank reconciliation for your small business:
- Identify fraud instantly
One of the importance of performing bank reconciliation is the ability of an organization to detect any mysterious and unauthorized transactions within the organizations.
Due to vigilant and meticulous tracking, the accountants can easily recognize any unfamiliar transactions within the company. It also enables the accountant to track any suspicious fraudulent withdrawing within the organization as quickly as possible.
Thus, this enables the accountant to stay alert of the sign of fraud by ensuring the company received authorized checks, no alteration made to the checks received, and track if there are any unauthorized withdrawals.
2. Distinguish the missing records on both accounts
Sometimes your customers will make payment directly to your bank account using electronic bank transfer (ETF) without you knowing. Since the accountant is not informed about the amount, hence the transaction is not recorded in the business book.
After performing bank reconciliation, the accountant will update the business book to ensure that both the business book and bank book are consistent.
Besides, bank reconciliation also enables the accountant to make amendments to their existing business book if they notice any errors in the record.
3. Easier tracking of the non-sufficient fund (NSF)
Also, bank reconciliation enables the accountant to track and verify payments made from customers promptly.
For instance, there are times when customers make cheques payable to our bank account. Without checking, we might assume that the customer has paid up. However, when we checked our bank account, then only we realized that the cheque payment isn’t successful.
Undoubtedly, the bank rejects the deposited cheque due to insufficient funds in your customer’s bank account.
Therefore, this enables businesses to contact the customers quickly and arrange for another future payment as soon as possible.
How can you get started with Bank Reconciliation?
Choosing the right accounting software that enables businesses to perform bank reconciliation is crucial.
With the right accounting software such as Deskera Books, every organization can perform bank reconciliations both manually or automatically.
Good accounting software enables businesses to pull out their bank data in the system itself. So, it’s more convenient for the users to match their bank book and the business book on the same page.
Businesses can match both accounts as you’re reviewing the existing records from top till the bottom of the page on Deskera Books.
Your job can be done a lot faster, especially with automatic bank reconciliation. Only those accounts you’re unable to reconcile will be left behind. Thus, you can slowly sort out the error of such records.
Do note to schedule a time to do bank reconciliation every day, especially if you are dealing with a high volume of transactions each day.
Click here to find out more about Deskera Books’ bank reconciliation feature. Sign-up for a free account today.
