Bank Reconciliations - What Are They and Why Are They Important

 Why Bank Reconciliations Are So Important

While it is important to have an internal record of your business financial records, making sure that the business bank account balance agrees with the internal business record is equally, if not more, important. 

 

Reconciling your business bank account monthly will help you to identify any unusual transactions that might be the result of accounting errors, or worse, fraudulent activity on the account.

 

How They Work

If you have ever balanced your personal checkbook, then you’re already familiar with bank reconciliations. The concept is no different. 

 

You make deposits for money received, in this case usually from customers. You also make payments, often to vendors that you owe or perhaps to pay down a business loan.

 

Some deposits and payments are seen instantly such as with any of the many direct pay options. Other transactions may have a delay such as when you write a check that then needs to be cashed. So, rarely will the bank statement balance match the internal account balance. The bank reconciliation will show any outstanding checks or deposits that need to be accounted for in order to bring both sides into balance.

 

Final Note:

Having someone else perform the actual bank reconciliations allows you to put your time and energy into growing your business, but never be too busy to put your own eyes on the bank statements and cancelled checks. Ask questions when necessary, your bookkeeper/accountant should expect them.