Sometimes your current bank account balance is not a true representation of cash available to you, especially if you have transactions that have not settled yet. If you’re not careful, your business checking account could be subjected to overdraft fees.
You should perform monthly bank reconciliations, so you can better understand your cash flow and true cash position.
A bank reconciliation is a process of matching the balances in a business’s accounting records to the corresponding information on a bank statement. The goal of the bank reconciliation process is to find out if there are any differences between the two cash balances. If there are any discrepancies, you have to recheck your company’s accounting records as appropriate.
We strongly recommend performing a bank reconciliation at least on a monthly basis to ensure the accuracy of your company’s cash records. A monthly reconciliation helps to catch and identify any unusual transactions that might be caused by fraud or accounting errors, especially if your business uses more than one bank account.
To perform a bank reconciliation, you need a few items including a bank statement and your internal accounting records. Hopefully, you have developed proper accounting or bookkeeping procedures to keep track of any pending cash transactions (either inflows or outflows). This will make the reconciliation process much easier.
We’ll show you why and how to conduct a bank reconciliation.