To be a successful entrepreneur, you cannot only concentrate on delivering quality products and services to your current customers but need to look after the finances of your business. There needs to be proper checks on every financial transaction being done so that the company's funds are not misused.

One of the best methods to monitor your company's finances is a bank reconciliation statement. It is a vital financial report that assists you in preventing your company from any fraud committed by any external or internal source.

The bank reconciliation statement is prepared to reconcile your internal financial transactions according to your books of accounts with your bank statement, so that you can determine any discrepancies. The differences or discrepancies could be due to accounting errors or fraud. Whatever the reason, your business is losing money, and you need to correct the issue immediately.

These accounts are done on a monthly basis, and errors are picked up and reported at once. You can also act and as and when required with a bank reconciliation statement.

Banks give statements either on a monthly or quarterly basis, and your bank statements are available online.

Why Is Reconciliation Necessary?

Some of the reasons for which a Bank Reconciliation Statement is needed are given below:

Identification of Fraud

When you account reconcile your book transactions of accounts with bank statements, it facilitates the detection of fraud, such as amount discrepancies realized through checks or checks drawn out without the knowledge of the respective authorities.

A bank reconciliation statement also enables you to identify the transfer or withdrawal of cash that are made without your authority. You may also find out whether all your deposits by you are included in the bank statement or not.

Maintaining Cash Flow Under Control

You cannot write checks to vendors and suppliers without knowing the cash balance in your bank account. If so, then your check will bounce, and supplies will be stopped by the vendors. You cannot monitor deposits received by the company unless you have a bank reconciliation statement.

There may be failures because of internal administrative issues or mistakes on the bank's part. You would also need to make extra charges, such as bank charges for not maintaining the minimum balance. You can also check if payments from customers have been credited on time or not. If a customer payment has been declined by the bank, you can follow up with the customer to pay on time.

So this is crucial to keep cash flowing.

Frequency of Reconciliation

The frequency with which a bank reconciliation statement must be prepared will depend on the nature of your business. If your business has a large volume of transactions and numerous employees, then a monthly reconciliation would be recommended.

Alternatively, in the event of weekly transactions and not many employees, then you could reconcile the books of accounts of the company and the bank statements quarterly.

Financial Emergencies

You avoid financial crises through a bank reconciliation statement. You will not be forced to seek extra lines of credit to assist you during a financial crisis and pay higher interest. Failure to reconcile the internal records and bank statement may result in a lack of ability to pay your workers on time, and worst case, be insolvent.

Whenever you balance your books and accounts with those statements that you obtain from your bank, you would employ a Bank Reconciliation Statement. Aside from this, it will help you find unauthorised monetary transactions. Insolvency and failure to pay your employees in due time are two likely consequences of not reconciling.

Improve Your Profits with a Bank Reconciliation Statement

By maintaining a watch on payments made to and from the vendors through a bank reconciliation statement, you would be aware of your cash balance at any moment. You will avoid all checks issued by you from bouncing and take prompt action in the event of any check issued by the customer bouncing. With timely-paid internal staff and vendors, your business reputation also gets boosted.

How to Optimize Your Reconciliation Process?

Bank reconciliation process refers to the act of verifying whether all the details in your business's books of account are precise. Reconciliation can either be done by a financial professional or an accountant. There are certain steps that are required to follow in order to optimize their account reconciliation process flow.

The first requirement would be to have an accurate and clean accounting system. This would imply that your accounts must be error-free, e.g., not having the wrong account number or unreconciled transactions. The second requirement would be to have sufficient detail in the records, so you can identify whether a transaction has been correctly recorded or not. The last step would be to review the reconciliations and make adjustments if necessary.

If you are too busy or just not interested in reconciling your accounts, let GinA's Bookkeeping and Paralegal Services do it for you.