Why is Bank Reconciliation important?

About Bank Reconciliation:

When you reconcile your business bank account, you compare your internal financial records against the records provided to you by your bank. A monthly reconciliation helps you identify any unusual transactions that might be caused by fraud or accounting errors, and the practice can also help you spot inefficiencies. For many people, accountancy and bookkeeping is just a chore and a cost that they would like to keep to a minimum. A manual reconciliation is a method and most of the company still take the manual approach when it comes to reconciliation. However, this method is prone to human errors.

ABook, has a feature of automated reconciliation of your bank accounts which can take one of the most time consuming tasks in the accounting department and make it faster and efficient. It does not matter if you own a small company or multinational enterprise. AB will do an excellent job in order to keep your business transactions simple and intuitive, so you will spend less time on paper work.

How Bank Reconciliation Works?

To reconcile your accounts, compare your internal record of transactions and balances to your monthly bank statement. Verify each transaction individually, making sure the amounts match perfectly, and note any differences that need more investigation.

The Importance of Reconciling

Business bank accounts receive less protection than consumer accounts under federal law, so it’s especially important for businesses to stop problems quickly. You can’t necessarily count on the bank to cover fraud or errors in your account.

Detect Fraud

Abook will carefully review based on appropriate controls and procedures helps to reveal fraudulent activities .These could include payments for illegitimate business purposes, payments to unauthorized employees or unauthorized vendors, and amended check amounts and details.

A few things to consider include:

  • Were legitimate checks that you issued duplicated or changed, resulting in more money leaving your checking account?
  • Were checks issued without authorization?
  • Are there unauthorized transfers out of the account, or did anybody make unauthorized cash withdrawals?
  • Does the account have any missing deposits?

Identifies Bank Errors

Bank clerks make bank errors regularly -- they might transpose numbers and record the wrong check amount, record the correct amount to the wrong bank account, omit an amount from a company's bank statement, or record a duplicate transaction. Reconciling the bank account gives the company time to notify the bank of its error, allowing the bank to research the discrepancy and correct the account.

A few things to consider include:

  • Avoiding bank fees for insufficient funds or using lines of credit when you don’t really need to
  • Keeping track of your outstanding checks and following up with payees
  • Avoiding bounced checks (or failing to make electronic payments) to partners and suppliers
  • Knowing how much cash you really have available in your accounts

Improves Collection Actions

Bank reconciliations allow companies to better manage their accounts receivable. When a customer's payment clears the bank, the receivable is no longer outstanding and therefore requires no further action. But if the client's check doesn't clear, that alerts management to be more aggressive in its collection efforts.

Prevents Overdraft

Time lag between cash outflows -- to vendors and employees -- and payments coming in -- from clients and customers -- can vary considerably. This is especially important when a company is operating on very low cash reserves. Regular bank reconciliations can help management postpone payments that would result in company overdrafts, bounced checks and insufficient-fund fees and interest.

A few things to consider include:

  • Avoiding bounced checks (or failing to make electronic payments) to partners and suppliers
  • Knowing if customer payments have bounced or failed, and determining if any action is needed
  • Making sure every transaction gets entered into your accounting system properly