Business owners frequently tell us that they are “reconciling” their bank account because they are categorizing and matching transactions downloaded into the connected bank feed. While bank feeds have significantly reduced the amount of time a business has to spend doing data entry and allows for business to have real time information in their accounting system, it is NOT a replacement for doing formal bank reconciliations.
The bank reconciliation process requires the matching of transactions recorded in the accounting system to a bank statement received from the financial institution at the end of each month. It is the only way to ensure that all transactions recorded in the accounting system actually took place and are properly recorded. It is a check and balance to safeguarding a business owner’s most important asset, cash.
Problems That Can Occur
Not doing formal monthly bank reconciliation could be costly to a business owner and can result in inaccurate financial statements due to any one of the following:
- Duplicate entries
- Missing transactions
- Transactions entered for the wrong amount
- Transactions entered that never took place
How This Affects Business Image
This can lead to making bad business decisions based on misinformation verses the actual results of the business. The business image with customers and vendors could be negatively impacted if accounts receivable and accounts payable aging reports are not accurate due to misapplied receipts or payments. Any one of the above errors could also result in theft of cash.
How This Affects Taxes
No business owner wants to pay more than they really owe in taxes. If there are duplicate income amounts recorded in your accounting system you may be paying too much in income taxes. If expenses either don’t get recorded or get recorded incorrectly, you may be missing or not taking enough of a tax deduction again resulting in paying more taxes. If audited, IRS agents will ask to see your bank statements and bank reconciliations.
How We Can Help
We guarantee that the time and cost it takes to properly reconcile your bank accounts on a monthly basis will be less than the headaches and errors that could result by not doing it at all. Our expert trainers can show you how to properly and efficiently download and reconcile your banking and credit card activity.