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How often do you reconcile your company\u2019s internal financial records against your bank statements? Bank reconciliations are an essential internal control procedure that busy owners and managers sometimes overlook or neglect. Here\u2019s why it pays to perform them regularly.<\/p>\n
Operational benefits<\/strong><\/p>\n Weekly or monthly bank reconciliations can improve the accuracy of your company\u2019s financial records. You may uncover errors and omissions, allowing you to take corrective measures before internal problems spiral out of control. Bank reconciliations can also be an effective antifraud control. In addition to revealing fraudulent transactions, bank reconciliations may deter dishonest workers from engaging in criminal activity because they know someone is checking their work.<\/p>\n Moreover, bank recs improve accounts receivable management. For instance, if you notice bounced checks and bank overdraft fees when reconciling deposits, you might consider changing the credit terms for certain high-risk customers.<\/p>\n The reconciliation process<\/strong><\/p>\n Typically, a bank reconciliation statement starts with the cash balance from the bank statement. After adding deposits in transit and subtracting outstanding checks, you\u2019ll arrive at the adjusted bank<\/em> balance. In other words, you\u2019re adjusting the bank balance for transactions entered in the company\u2019s books but not yet posted to the bank account.<\/p>\n Next, reference the checking account balance from the company\u2019s accounting records. You\u2019ll arrive at the adjusted book<\/em> balance after adding interest income and subtracting bank fees. The bank has posted these transactions to the account, but they aren\u2019t yet recorded in the general ledger.<\/p>\n The adjusted bank balance should equal the adjusted book balance. If not, you\u2019ll need to determine the source(s) of the discrepancy.<\/p>\n Automation tools<\/strong><\/p>\n Accounting software dramatically simplifies the bank reconciliation process by automating much of the matching and reporting. However, it\u2019s not entirely hands-off. Regular review and manual adjustments may still be necessary to ensure accuracy and address discrepancies.<\/p>\n For example, manual review is often necessary for certain transactions that may be unrecognizable due to:\u00a0<\/p>\n Initially, accounting personnel may need outside help setting up rules within the software to categorize recurring transactions.<\/p>\n Business intelligence<\/strong>\u00a0<\/p>\n Reviewing the reports generated by your accounting software can help you manage cash flow more effectively and detect fraudulent activity. For example, you may unearth unauthorized transactions, altered checks or phishing scams targeting the business\u2019s account.<\/p>\n It\u2019s critical to report fraudulent automated clearing house (ACH) transactions immediately. Reporting timeframes may vary by bank and jurisdiction, with some requiring notification within 24 hours. Notification for fraudulent checks is typically 30 to 60 days but can vary by state and financial institution. The sooner you report fraudulent transactions, the better. It will give you and your bank more time to protect your funds, including closing existing accounts and opening new ones.<\/p>\n From discrepancy to clarity<\/strong><\/p>\n Regular bank reconciliations are more than bookkeeping tasks \u2014 they\u2019re crucial for safeguarding a business\u2019s financial health and operational integrity. Contact us for more information. We can help streamline the reconciliation process, determine the sources of hard-to-find discrepancies and investigate suspicious activity.<\/p>\n \u00a9 2024<\/em><\/p>\n <\/body> How often do you reconcile your company\u2019s internal financial records against your bank statements? Bank reconciliations are an essential internal control procedure that busy owners and managers sometimes overlook or neglect. Here\u2019s why it pays to perform them regularly. Operational benefits Weekly or monthly bank reconciliations can improve the accuracy of your company\u2019s financial records. 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