Why is it important to reconcile your bank statements?
In this article, we will discuss why it is essential for you to reconcile your bank statements.
Reconciliation of bank statements is quite essential for any business, large or small. This, of course, involves checking the bank's balance and transactions with your business's balances and transactions.
The primary purpose here is to ensure that the estimated business balance matches the estimated bank balance. A few reasons you would like to know on why is it that reconciliation for your bank statements plays such an essential and crucial role can be found below:
- Data Entry Validation: Preparing and reconciling bank statements gives you a clear view of where and what type of errors you have to deal with, like having the wrong numeral amounts, copied entries, and other data-related question marks.
- It helps you keep accurate financial statements: Here, you need to check with the bank if there are any errors from your or the bank's side, even though it is doubtful this happens. Nevertheless, it should be checked to remain on the safe side.
- It helps you keep accurate tax reports: To help have accurate and error-free tax reports, it is vital to reconcile your bank statements.
- It helps you keep surveillance on your cash flow projections: Cash flow is one of the most important aspects of a business, and running a smooth cash flow is highly encouraged and mandatory. Therefore, reconciliation of bank statements comes in handy at this part.
- It helps you find irregularities: if there is an outstanding amount of money you owe to your banks, whether cheques or electronic bank transfers, reconciling bank statements can spot these irregularities between the business's financial and bank statements.
- It helps you manage and control thefts and robberies: You may be saved from thefts and robberies and always be on the safe side by reconciling your bank statements.
When is it essential to have these reconciliations of bank statements?
To determine how often you need bank statement reconciliation can be understood and estimated through the number of transactions that are being made and on what basis.
A few businesses and companies reconcile bank statements daily as they have money flowing in and out of their accounts several times every day.
Take the example of a retail store or a restaurant where there is heaps of cash, and a lot of cash is coming in daily for both entities. They could reconcile every day to make sure everything is up to the mark, and all the money receipts are going to the bank account.
Now, take the example of a small online store that does not have many transactions it's making; this type of small business could hold weekly or monthly for reconciliation of banking statements.
Keeping and staying on the right track is crucial. Therefore it is highly suggested to have a particular schedule for bank statement reconciling. The bank statements that were not reconciled will be reconciled now if you stick to a regular regime. It will also help you manage the cash flow of your business.
How important bank reconciliations are cannot be stated enough as their value is highly significant. However, how frequently these reconciliations occur is completely and entirely based upon the volume of business transactions. Businesses, in particular, choose to reconcile their bank statements every month, but having a backup plan won't hurt anyone, meaning keeping a record of bank reconciliation daily or weekly. So now that we've covered how important it is to reconcile your bank statements, it is up to you to take the next step forward for the success of your business.