There’s nothing more terrifying than a bank reconciliation audit. The IRS looks over all your transactions for errors and sometimes even fraud. A routine check can turn into a lengthy and expensive investigation.
In order to avoid this, business managers need to check their bank reconciliation statement each month.
What is a bank reconciliation statement? Can you do one by yourself? Do you need to hire an accountant? All these questions and more will be answered in this short article, so read on.
Understanding a Bank Reconciliation Statement
This statement is a company’s way of reconciling its business and banking activity with other financial records. It shows deposits, withdrawals, and other monetary activities.
The Importance of Bank Reconciliation
It’s important because it alerts a business manager to possible errors in transactions. Comparing account records with statements from banks catches mistakes before an IRS auditing team finds them.
You don’t want to go through a bank reconciliation audit.
Bank reconciliation statements also help point out possible delays in check clearances. Accurate transactions are assured along with posting on a general ledger.
How to Do a Bank Reconciliation
Depending on the size of your business you may have to do a bank reconciliation every few days. If you chose to do them yourself, there are a few things you’ll need to access:
- The cashbook
- Previous reconciliation statements
- Relevant bank statements
In the case of inconsistencies, you’ll need supporting documents.
Once you’ve gathered the proper documents, you’re ready to start. Look at the cashbook and make sure it matches the closing balance.
Make sure the bank statement is accurate.
Check the reconciliation statement. See if it accounts for the differences between the bank statement and cashbook balance. Sort through any outstanding items on the bank reconciliation statement.
If at this point the numbers aren’t lining up, start searching for transposed numbers.
It’s not necessary to do a deep and thorough check every time. You should glance over some cashbook entries every once in a while to make sure entries are valid.
After everything is done, you need to make a note. Something as simple as putting checkmarks by what you’ve already done will save you a lot of extra work.
Hire an Accounting Company
There are many common types of bank reconciliation mistakes you can make. Doing these statements by yourself is complicated and time-consuming, and it can damage your business.
For that reason, most companies trust a third-party business such as Balanced Asset Solutions to do these statements for them. It minimizes the likelihood of mistakes.
Prepare Your Statement Today
When you own your own business, it’s easy to forget about the finances. You become swept away with lofty goals and aspirational profits. However, you can’t overlook your bank reconciliation statements.
These summaries directly show you how your business is doing. There’s no sugar-coating the numbers. It’s also a great financial tool that can help you find fraud before it’s too late.
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