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Bank reconciliation is a process performed by a company to ensure that their financial records are correct and match up with the bank’s records. For many new and small business owners handling their first credit card finances on their own, a project like this could seem daunting. However, there are numerous benefits to completing this financial task. Below we have listed 5 of the best ways in which your business can benefit from the bank reconciliation process.
Eliminates Error
Bank reconciliation is designed to help businesses eliminate error within their financial records. Consistent reconciliation will help you to keep your account information identical across all departments, banks and records. This will allow you to detect and fix errors such as paying for the same invoice twice. By comparing your own records to that of your bank, you can find differences and investigate promptly which will benefit your organization.
Prevents Overdraft
In addition to eliminating recorded errors, bank reconciliation can also help you to avoid overdraft fees. The lag time between cash outflows and received payments can often lead to trouble for some businesses. Keeping track of your records through this financial process will help you to keep track of how much money is going into and out of your account at any given time. This should allow you to organize and schedule payments so that your account is never overdrawn, which is especially helpful if you are going to be looking at mortgage rate predictions soon in your personal life.
Balances Account
A reconciliation statement also provides a tool to help you balance your account. Throughout the process, you will already be reviewing your financial information. When you complete the statement, you will have a key to all of your pending and outstanding charges and payments. This will make balancing your checkbook that much easier. Staying consistent with your bank reconciliation, whether it is done every month, week or day, can help you achieve an accurate balance of information.
Added Security
Another benefit to consider is the added security this process can provide for your business. Bank reconciliation can help with fraud detection, protecting your business and its funds from thieves. When you go over all of your financial records, you are more likely to see any odd spending habits, withdrawals or other transactions that you may have missed otherwise. This encourages you to monitor your account more closely and identify fraudulent behavior early on. It also helps you to build a good credit score, because a compromised account will definitely impact your credit rating.
Saves Money
All of the benefits above ultimately lead to you saving your company money. Accurate bookkeeping is the key to financial success. The bank reconciliation process encourages you to keep track of all of your spending so that you know exactly how much should leave your account. Bank reconciliation, specifically, encourages business owners and financial managers to take the time to analyze the details. Overdraft fees and excessive interest could be costing you money, and this process will help you to prevent that.
Bank Reconciliation Process
It is all well and good to understand the benefits of bank reconciliation efforts; but it is even better to know how to do a bank reconciliation. There are several steps involved once you look over your monthly bank statement. The most important, perhaps, is the second step – adjusting your bank statement balance. This first step will be where you increase the recorded bank balance to account for deposits in transit. Deposits in transit are simply the funds you have deposited that have not yet posted to your account, which causes them to be left off your bank statement. Make sure to include these when you begin preparing a bank reconciliation.
The bank reconciliation process is crucial for the proper function of any business. Keeping a close eye on your finances can bring many benefits to your business. By checking your financial records, you can save money, prevent fraud and eliminate any potential errors with your account.
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