Bank reconciliation is the process of comparing your internal financial records to those provided by your bank. Bank recs are an incredibly important part of small business bookkeeping. They can help you identify, alleviate, and prevent the inconsistencies that impact your bank account. For example, accounting errors and fraudulent transactions.
How Does Bank Reconciliation Work?
Bank reconciliation involves periodically making sure that the transactions you have assigned to a particular bank or credit card account in your accounting software match your statements.
You’ll want to make sure there are no:
• Duplications
• Omissions
• Date errors
• Amount errors
A bank rec typically covers the same time period as a bank or credit card statement — the one you download as a PDF or receive in the mail.
When you receive your latest statement, you’ll go through the process of double-checking all transactions. Your bank rec is complete when your ending balance at the end of the period matches your statement and your accounting software.
Good accounting software keeps track of your past reconciliations. This is in case you need to go back and look at prior periods.
Bank reconciliation works best when completed at regular intervals for all bank and credit card accounts. At a minimum, bank reconciliation should be conducted shortly after the end of each statement period. Businesses that make a lot of transactions may wish to do more frequent spot checks before “completing” a bank rec when the newest statement becomes available.
Why is Bank Reconciliation Important?
Bank reconciliations are an important step in safeguarding your business because they help you identify discrepancies in accounting before they grow into a serious problem. The longer a business goes without a bank reconciliation, the more likely it is to discover that cash balances are much lower than projected. Resulting in bounced checks and overdraft fees.
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Spot Fraud Before It’s Too Late
Bank reconciliation should be an important priority for every small business. It enables you to spot signs of fraud before it’s too late. Unlike consumer accounts, small business accounts are not federally protected. Meaning banks are under no obligation to cover fraud or errors in the account.
When reconciling your accounts, look for the following red flags:
• Were any checks duplicated, changed, or issued without authorization?
• Were there any unauthorized transfers or withdrawals from the business account?
• Are you missing any deposits?
Bank reconciliation is the fastest and most reliable way to answer those questions, catch fraud or cash manipulations, and minimize the damage they can inflict on your business.
Disadvantages of Manual Bookkeeping
The process of bank reconciliation is straightforward and simple but also tedious and labor-intensive. The majority of small businesses spend hours identifying individual transaction records to spot inconsistencies that can be alleviated.
Manual bookkeeping and bank reconciliation involve the use of paper ledgers and financial journals to record transactions. These tools are not only inefficient, but they’re also susceptible to human error.
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Streamline Bank Recs with an All-in-One Accounting Tool
Using a consolidated, all-in-one accounting platform is far superior to manual bookkeeping for many reasons, but primarily because it enables small businesses to:
1. Reduce the time spent on manual data entry.
2. Minimize the number of mistakes attributed to human error.
3. Increase the accuracy of profit and loss statements.
4. Provide an archive of all financial transactions, including receipts and pending checks.
5. Maximize data security with regular backups.
Most importantly, a tool that connects directly with your bank account removes the burden of collecting, comparing, and analyzing financial data for bank reconciliation, which leaves you free to focus on expanding your business.
FINSYNC features bank and credit card connections, which makes it easier to conduct bank reconciliation and identify mistakes immediately. Unlike non-cloud environments such as QuickBooks Desktop, FINSYNC checks active connections to bank accounts or credit cards — eliminating the manual data entry required by legacy accounting software.
FINSYNC’s Network of Virtual Bookkeepers
When your accounts are synced up on FINSYNC’s platform, the manual data entry that bank reconciliation often requires disappears entirely.
A tool like FINSYNC drastically reduces the time and labor required for bank reconciliation. However, it is helpful to have an expert manage your books and help solve any problems that may arise. Fortunately, it’s simple to find an affordable, well-qualified bookkeeper.
How FINSYNC Can Help
FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.