The bank reconciliation is the comparison made between the accounting records, maintained by you about your bank account, and the modifications made by the account. The reconciliation of business books, bank accounts, loans, and credit cards is one of the most significant steps of the accounting cycle. A considerable majority of the population considers that bank reconciliations as the most complicated tasks. The reconciliation of business books is not that complicated.
Most people do not check the statements of the credit card before paying. Also, none of us has time to balance our checkbooks. Most of the users consider personal payments as flossing. We are aware of the significance and potential impacts of reconciling our business books, but view it as a hassle. With the advancement in technology, personal finances are extremely automated, leaving you off the hook. However, at the same time, due to the automation of personal finances, the potential errors can be easily identified. The transparency between you and your bank accounts had made your life easier. Before reconciling your business books, you need to make readjustments to your books. When you make readjustment to your bank account, you identify and correct the errors in cash transactions that might not have appropriately entered into the books. You might have adjusted for reflecting the interest payments or incomes, the charge-backs of credit cards, and bank fees. Reconciling your business books will ensure whether or not, you have done everything right. Bookkeeping is fundamental for the reconciliation of business books. Your accounting records must match the bank records for analyzing the cash present within your bank accounts. The day you have closed your business books might not be the same date at which the bank had to send it. For this reason, you must do your best to maintain your accounting records and balance the business books internally before going for the reconciliation of your bank account.
The following are some of the reasons you should reconcile your books with your bank statement at least once a month.
Preventing Slow Transaction
While dealing with your finances, you can take more hands-off approaches, as the transactions are almost instantaneous. Paying someone by using credit cards requires just one click and a duration of two to three seconds. Within only three seconds, you can check your accounting records as well as your checking account balance. With the advancement in technology, your business finances are nothing but an instant. Banks require time for processing the payments, as well as the consumers take a long time in handing over the case. These sorts of intentional delays are likely to create discrepancies between your account book and your bank account. Such differences can quickly snowball and can also have devastating consequences. However, reconciling your bank statement can provide you with opportunities to ensure matches.
Preventing the Risk of Experiencing Typographic Errors
The entire banking system is computerized; therefore, it at the risk of experiencing typographic errors. Typographical errors are likely to occur during typing. Such that one backspace key can cause almost eight mistakes for every 100 words. Reconciling your books allows you to ensure that your numbers match your banks so that you can find problems earlier before experiencing severe consequences.
Dealing with Ambiguities of Initial Stages
In the initial stages of starting any business, there is a requirement to deal with a range of simultaneous happenings. The to-do list seems to get larger and larger. This list growth will allow essential issues to fall through the cracks. If you come across clients who are overpaying for your services, reconciling the business books can allow you to catch the mistake and foster goodwill.
There exist a range of reasons, which can lead to a mismatch between your numbers and the numbers kept by banks. However, it is essential for running the business to match your numbers with the bank numbers to budget early and to budget often. It is challenging to predict the future or to make the forecast of the budget if you try to jump blindly to a particular degree. However, the individuals who are diligent about reconciling their business books can leave the ground on solid footing for sure.
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