What is bank reconciliation? 8 reasons to reconcile monthly to establish a sound internal control system
Many businesses today, struggle with financial control. They must adopt uncompromising standards to ensure all the company’s records from ledger to balance sheet are correct and verified.
Bank reconciliation is validating your transactions and balances. It helps you identify discrepancy and remove them from your records. We know it is a very repetitive and mundane task. But it is an extremely important aspect for any company. It basically reviews all the transactions and ensures they reflect on the bank statement. A good bank reconciliation practice does not just help establish a sound internal control system but also leads your business towards profitability. You know where your business stands in terms of finance. It enables you for better financial planning for the future.
Here are some of the reasons why you should consider bank reconciliation seriously:
Identification of errors in bank records of a company or bank statement
Bank reconciliation eliminates differences in your accounting records. It essentially compares your internal transaction to your account balance. It ensures each transaction goes through the bank records and appears on the bank statement. It tracks down all the differences between accounting records and payments receipts. This is a critical task and has to be done with utmost diligence to keep fair records of all your accounts.
Control mechanism and helps to prevent unauthorized withdrawals
As they say, “prevention is better than cure.” Bank reconciliation creates a control mechanism to oversee all the financial transactions of your company. With rigorous verification, you check on the deposits and withdrawals of your bank accounts that prevent fraudulent transactions.
Accurate Cash Flow planning
It keeps you updated with regards to your cash flow on a regular basis. It helps you make more accurate cash flow predictions and planning. Bank reconciliation services enable you to better utilize working capital for your business.
Helps in avoiding Overpayment
If you have paid for the same invoice more than once to vendors and suppliers, reconciliation notifies it to you that the amount has been paid twice. It monitors your expenditure and saves money.
The safety of your accounts is at stake if you are not supervising them on a timely basis. This is even more pertinent in case of bigger accounts. It is good to detect the possible threats that could compromise your accounts before it is too late. Banks and cards reconciliation services highlight abnormalities in your banks and credit card accounts. You can prevent your bank accounts from any unauthorized access and cancel the card the moment you detect the fraud transactions. This can only be possible when you implement a system that regularly reconciles your accounts.
It is embarrassing when your check bounces. Reconciliation keeps you updated with your account balance before you sign off the check.
A sound internal control system
It establishes the sound internal control system which every business needs in order for financial operations to run smoothly. Bank and cards reconciliation services help you check all the transactions going in and out of your accounts and verify them as well. It detects errors and rectifies them. Receiving invoices is not enough. You have to ensure that checks are cleared and money is deposited. Reconciliation keeps a check on all your debit and credit transactions to keep accounts balanced.
Year-end procedure for bank balance confirmation
There are chances, especially in case of big businesses that bank balance in your cashbook and bank accounts don’t match. A transaction might be recorded differently. Reconciliation assists you to remove those inconsistencies by monitoring deposits and withdrawals on a daily basis. If you don’t reconcile your accounts at least once a month, it would be a humungous and tedious task for you to authenticate bank balance amount at the end of the year.
Every business should implement concrete bank reconciliation practices. It does not just identify and remove your problems but makes you aware of the financial position of your business.
CapActix offers sound banks reconciliation services to bring you clear understandings of your transactions and finances. It reduces the chances of fraud and protects your bank accounts. If you are looking for reconciliation services, please write to us at [email protected] or call us at +1 201-778-0509