What is a Bank Account Reconciliation?
A bank account reconciliation is a process of ensuring the company’s accounting records and bank statements are correct.
The bank account reconciliation is an important accounting tool for all businesses. It can help the company correct the financial statement, rectify the omissions of the accountant, detect the theft, track the processing transactions, and more.
There are many factors can occur a difference between the balance as per bank statement and the balance as per cash book.
The Annual Interest from Banks
Undoubtedly, companies will save their deposits in banks’ saving accounts. This will occur an annual interest. The annual interest will be added to companies’ accounts automatically. Thus, the balance as per bank statement will be higher than the balance as per cash book. Using a bank account reconciliation service can make the check procedure easy.
You can’t always notice that banks have charged various kinds of fee from your company’s saving account. These charges will be automatically be charged from the company’s account without a reminder. This way, they will reduce the balance as per bank statement. However, if the bookkeeper doesn’t notice and record it to the cash book, the balance as per cash book will be different from the balance as per bank statement.
Errors in Bank Statement or Cash Book
Occasionally, the accountant of the company or the employee of the bank will make mistakes. Maybe they will put the decimal point in a wrong place that results in the number about ten times as much as the original one. These mistakes will incorrectly record the balance of the company. A bank account reconciliation can help the bookkeeper find the problem through comparison the bank statement and the company’s cash book.
The Processing Activities
After the accountant deposits a check or makes a huge amount of transfer, the bank will take a time delay. The time delay may be several hours or several business days. Hence, if the bookkeeper records the check though the money hasn’t been deposited to the company’s account, the balance as per cash book will be higher than the balance as per bank statement.
As a result, that’s why a bank account reconciliation is important. It can help the company check both the company’s cash book and the bank statement and correct the difference.
Moreover, the bank account reconciliation offers other advantages which can facilitate the company’s accounting and even the business development.
Transaction Status Tracking
Just as mentioned above, some checks will take days to be deposited by banks. This way, you will misunderstand and overestimate the cash flow of the company. In this case, you can review the bank account reconciliation to check and update the transaction status even operated months ago.
Financial Status Control
A company’s balance without any error can help you make the strategy for the company.
As a manager, if you are going to know and make the financial status under control, using bank account reconciliation is one of the best ways to achieve it. The cash book and the bank statement shown on the bank account reconciliation of the company allow you to rapidly know the financial status of the company. After you have reviewed all the financial statement, you can make the plan and strategy for the company.
A bank account reconciliation can help the company find unauthorized transactions and prevent it from a fraudster. It seldom happens, but just in a case. The more frequent you check the bank account reconciliation, the smaller possibility that an illegal transaction will happen.