Most businesses believe that simply because it is not statutorily required to present any form Bank Reconciliation report and other accounts reconciliation, consider it never that important in business operations. Some business consultants surprisingly fail to emphasis on how important it is for a business to routinely undertake accounts reconciliation and also does not matter to their clients what fixed date for such an important business undertaking.
This write up will mainly focus on Bank reconciliation because of its control importance in a typical business environment.
Bank Reconciliation Statement is prepared on a periodical basis (recommendation: monthly), to ensure that bank related transactions are recorded properly in cash book which a business maintains in-house and also by the bank in their books.
By comparing opening and closing balances for both bank statement and Cash book with carefulness, a business could identify discrepancies due to un-credited or un-presented checks (cheques) and other charges including unapproved withdrawals (if any) and unexpected deposits; from the previous period. This also helps the business to detect errors in recording transactions and determining the exact bank balance as on a specified date.
How to ensure efficient Bank reconciliation
Emphasizing more on the benefits, which includes;
- Detecting or spotting Accounting errors: A bank reconciliation helps a business to detect or spot accounting errors which are common to every business. These mistakes include errors such as addition and subtraction, missed payments and double payments.
- Tracking Bank Interest Fee or charges: Banks might add interest payments, fees or penalties on your account. Monthly bank reconciliation allows you to add or subtract such amounts in your books.
- Detecting Fraud: You may not be able to prevent completely frauds and any other form of misappropriations in your business, however, you could prevent the future occurrence of frauds and misappropriations in your business. Bank reconciliation exercise helps a business in detecting and spotting fraudulent transactions. For control reason, most businesses outsource this function to an independent consultant to prevent falsification of books and accounting records, which is usually common when using a staff for this function.
- Tracking Receivables: Bank reconciliation allows a business to confirm all receipts to avoid awkward situations and also identifying entries for receipts which were not formerly deposit to a business bank account.
A responsible business should ensure efficiency in reconciling all its bank accounts.
Firstly, a business should understand perfectly well that banks can make mistakes too; – It is possible that bank might have committed a mistake. They might debit incorrect amounts from a business account, or credit deposits which doesn’t belong to a business. In any case that errors have been found for which a business cannot find any justifiable explanations, or raise some kind of doubts, the best thing is to consult your bank immediately.
Secondly, it’s essential to have all the required documentation and information readily available. If all the required documentation and information are at your disposal you get a better view of things, ensuring efficient reconciliation exercise. This should be a consistent activities and it’s strongly recommended to be carried by an independent professional or an outsourcing firm.
Thirdly, avoid common errors, such as: error relating to duplication of entries, not accounting for a transactions that would cause a difference equal to the missed amount, errors while entering commas and dots, which can cause discrepancies of significant value, Transposition errors while entering figures in the books. For instance, instead of entering 221,200, entering 212,200.
Finally, listing out differences with no action taken makes bank reconciliation exercise meaningless, all recorded financial activities should reflect a true position of a business; which can be achieved through periodic reconciliation of banks and other accounts. Bank Reconciliation exercise may not be for everybody due to certain control reasons, however, independent professionals stand a better chance because of certain complications that may occur along the line; it could also be daunting and time-consuming in procedures. Not recording correctly and poor monitoring can cause complications and confusion.
Do You Need Accounting Help?
Consistent up to date and cleaning of accounting records for sound business decision making, may be posing some difficulties when you are preoccupied with other business functions. Is it time to consider independent professionals because of certain technical complications that could occur along the line? It could also be daunting, time-consuming procedures. Not recording correctly and poor monitoring can cause complications and confusion.
we @Fritznoble assist our clients on the best available options that suit their businesses...Reach out/ Outsource With Us… If Accounting works are bothering you, then it’s time you outsourced your accounting and bookkeeping requirements, this will help you concentrate more on other core activities of your business; with a team of professionals to help.
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